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Charlotte Amalie
Thursday, August 18, 2022
HomeNewsArchivesMore Loan Guarantees Could Boost V.I. Commercial Lending, Banks Say

More Loan Guarantees Could Boost V.I. Commercial Lending, Banks Say

Increasing the amount of money available for loan guarantees would increase commercial lending in the territory, bank executives and Economic Development Authority officials agreed at a Senate hearing Tuesday.

"What can we do as a government to help you increase commercial lending?" Sen. Janette Millin Young asked, while chairing the Committee on Economic Development, Agriculture and Planning.

"Some additional guarantees for loans to facilitate lending would help," FirstBank Senior Vice President Victor Santiago replied.

EDA Chief Executive Officer Percival Clouden said the authority does provide loan guarantees and more funding for them would help. In 2011, the U.S. Treasury approved $13.1 million in federal funding for loan guarantees through the U.S. Virgin Islands State Small Business Credit Initiative SSBCI Program. So far, $2.1 million has been used to provide guarantees on more than $8.1 million in loans and another $1.3 million in guarantees "is in the pipeline," Clouden said.

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Performance bonding is a major hurdle for local contractors to get large government construction contracts, Clouden said, adding that $5 million of that $13.1 million is to provide loan guarantees for performance bonding.

"Now $5 million is really not a lot of money to support a performance bond program," Clouden said. "However, we at EDA have been pushing to get the local contractors to organize themselves into an association so they can come together on contracts, so each will be responsible for a part. But we have not been successful because each contractor wants the whole contract and it is difficult to support a $10 million performance bond," he said.

The high cost and difficulty of acquiring insurance is another obstacle to local contractors, Clouden said. To get around that, "I would recommend to the banks they approve lines of credit to their small contractors, under which standby letters of credit can be issued in lieu of insurance," he said. "That will be cheaper and easier and we control it. It is a win-win for us and the small contractor," he said.

Banks are lending, but are hampered by the poor economy, high delinquency rates and many prospective borrowers who need help preparing themselves and the proper documentation, according to Santiago and Lawrence Aqui, Scotia Bank vice president

Scotia Bank has around $500 million in loans outstanding in its portfolio and deposits of around $400 million, said Aqui.

Santiago said FirstBank has a loan portfolio of between $920 million and $930 million and deposits of "almost a billion."

Aqui said, “If you look at the number of loans and the dollar amount of the loans, it is quite substantial.” He said, “Seventy percent of the time we say yes, but sometimes the lending criteria are just not met."

Santiago agreed. "If we approve every application we know we will have decreasing performance. So we cannot be too flexible on this side or we will have trouble on the other side of the equation."

Sen. Terrence "Positive" Nelson questioned how the banks could charge high interest rates but not be able to lend more easily. "You have got it made," Nelson said.

Aqui replied, "I would ask you to go to the Lieutenant Governor’s Office and ask for information on the profitability of local banks and I think you will be surprised."

Nelson pressed him on high interest rates.

"We also have very high delinquency rates," Acqui said. “We have very high insurance costs. It is not just a fee here and there; it is a lot of other parts that determine profitability.”

The committee voted to hold for one day a bill sponsored by Sen. Nereida "Nellie" Rivera-O’Reilly that would require those who benefit from EDA tax breaks to purchase a home in the territory. Voting to hold the bill until the committee met again Wednesday were Millin Young, O’Reilly, Sens. Sammuel Sanes, Diane Capehart and Clifford Graham. Absent were Sens. Myron Jackson and Shawn-Michael Malone.

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Increasing the amount of money available for loan guarantees would increase commercial lending in the territory, bank executives and Economic Development Authority officials agreed at a Senate hearing Tuesday.

"What can we do as a government to help you increase commercial lending?" Sen. Janette Millin Young asked, while chairing the Committee on Economic Development, Agriculture and Planning.

"Some additional guarantees for loans to facilitate lending would help," FirstBank Senior Vice President Victor Santiago replied.

EDA Chief Executive Officer Percival Clouden said the authority does provide loan guarantees and more funding for them would help. In 2011, the U.S. Treasury approved $13.1 million in federal funding for loan guarantees through the U.S. Virgin Islands State Small Business Credit Initiative SSBCI Program. So far, $2.1 million has been used to provide guarantees on more than $8.1 million in loans and another $1.3 million in guarantees "is in the pipeline," Clouden said.

Performance bonding is a major hurdle for local contractors to get large government construction contracts, Clouden said, adding that $5 million of that $13.1 million is to provide loan guarantees for performance bonding.

"Now $5 million is really not a lot of money to support a performance bond program," Clouden said. "However, we at EDA have been pushing to get the local contractors to organize themselves into an association so they can come together on contracts, so each will be responsible for a part. But we have not been successful because each contractor wants the whole contract and it is difficult to support a $10 million performance bond," he said.

The high cost and difficulty of acquiring insurance is another obstacle to local contractors, Clouden said. To get around that, "I would recommend to the banks they approve lines of credit to their small contractors, under which standby letters of credit can be issued in lieu of insurance," he said. "That will be cheaper and easier and we control it. It is a win-win for us and the small contractor," he said.

Banks are lending, but are hampered by the poor economy, high delinquency rates and many prospective borrowers who need help preparing themselves and the proper documentation, according to Santiago and Lawrence Aqui, Scotia Bank vice president

Scotia Bank has around $500 million in loans outstanding in its portfolio and deposits of around $400 million, said Aqui.

Santiago said FirstBank has a loan portfolio of between $920 million and $930 million and deposits of "almost a billion."

Aqui said, “If you look at the number of loans and the dollar amount of the loans, it is quite substantial.” He said, “Seventy percent of the time we say yes, but sometimes the lending criteria are just not met."

Santiago agreed. "If we approve every application we know we will have decreasing performance. So we cannot be too flexible on this side or we will have trouble on the other side of the equation."

Sen. Terrence "Positive" Nelson questioned how the banks could charge high interest rates but not be able to lend more easily. "You have got it made," Nelson said.

Aqui replied, "I would ask you to go to the Lieutenant Governor's Office and ask for information on the profitability of local banks and I think you will be surprised."

Nelson pressed him on high interest rates.

"We also have very high delinquency rates," Acqui said. “We have very high insurance costs. It is not just a fee here and there; it is a lot of other parts that determine profitability.”

The committee voted to hold for one day a bill sponsored by Sen. Nereida "Nellie" Rivera-O'Reilly that would require those who benefit from EDA tax breaks to purchase a home in the territory. Voting to hold the bill until the committee met again Wednesday were Millin Young, O'Reilly, Sens. Sammuel Sanes, Diane Capehart and Clifford Graham. Absent were Sens. Myron Jackson and Shawn-Michael Malone.