Davies
FINANCE MINISTER Dr. Omar Davies, announced on July 5 that the special bonds to be issued at the end of this month as a result of the three percentage point reduction of the cash reserve ratio (CRR) in the banking sector was oversubscribed. The amount advanced totals approximately $2.8 billion of which fifty per cent will be invested in the development bonds.
The initiative will lead to the CRR of commercial banks and other financial institutions with Bank of Jamaica being reduced from 15 per cent of deposits to 12 per cent of deposits in three discrete quarterly movements of one percentage point each, in June, September and December.
This series of reductions will result in the release of funds to the commercial banks and other designated deposit-taking financial institutions of approximately $2.8 billion.
Dr. Davies was speaking at the signing of subscription agreements for development bonds at Le Meridien, Jamaica Pegasus, New Kingston.
Following discussions initiated by Dr. Davies with the Jamaica Bankers Association, the financial institutions agreed to utilise fifty per cent of the funds released to subscribe to the creation of a development bond to be onlent to viable projects in the productive sector of the economy.
The Development Bank of Jamaica, the new development bank cleared out of the merger of the former National Devel-opment Bank of Jamaica and the Agricultural Credit Bank, will issue the funds.
The funds will be utilised by the Development Bank and Ex-Im Bank to provide funding to the productive sectors of the economy under terms of a period of seven years at a 5.5 per cent per annum interest rate under five equal instalments.
The terms are to be activated some two years after the issue of the bond. A guarantee of the repayment of principal and interest is offered by the Minister of Finance and Planning.
Dr. Davies said that "earlier reductions in the CRR had seen one bank implementing a programme which utilises a portion of the funds released as a result of the reduction to provide loans to the productive sectors of the economy at an interest rate of 8.5 per cent per annum."
He said that stakeholders were likely to generate enormous benefit from the new bonds. "The financial institutions will now be obtaining a return on resources where previously they did not and that the pool of long term funds for onlending to the productive sectors will be increased."
The final interest rate to borrowers under the scheme will be 9.5 per cent and the "nation will benefit from investments in new and expansion projects with the resultant increases in employment," he said.
Dr. Davies complimented the banks for the "high level of co-operation and understanding which has developed between the private and public sectors", but lamented the fact that some financial institutions were tardy in disbursing approved loans.
Dwight Richardson, general manager of the Bank of Nova Scotia, a signatory to the agreement admitted that extenuating factors, such as procedural requirements were the more likely factors contributing to delays.
