Leader of the Opposition McKeeva Bush said last week the Cayman family is under attack, particularly because of the high cost of living.
Making a special statement in the Legislative Assembly on a matter he said was of national importance, Mr. Bush asked the standing Government to act in reducing the costs of living.
‘At no time has the stress been so widely felt and by all accounts, it’s only getting worse,’ Mr. Bush said.
One thing about which Mr. Bush spoke at length was mortgage rates. He noted that the US Federal Reserve lowered its interest rates from 5.25 per cent to 4.75 per cent last week. After the announcement, US banks followed suit with a reduction in their prime lending rates.
‘In fact, Bank of America cut its rate to 7.75 per cent within 10 minutes of the Fed’s announcement. Oh, that the local lending banks would be so efficient and courteous,’ he said, pointing out that the loans typically given by Cayman’s banks are adjustable rate loans.
‘[Local banks] say… that their rates are based off the United States Bank Prime Rate,’ Mr. Bush added. ‘Well… I am making a demand of them this afternoon that they immediately take steps to re-programme their computers to cause their loan rates on loans and other lending instruments to reflect a rate reduction of no less than… ½ per cent effective as of September 18, 2007.’
Mr. Bush pointed out that a half-per cent reduction on a $200,000 loan translated to a $62-per-month savings and a savings of $93 per month on a $300,000 loan.
‘In these times, each cent counts,’ he said.
Mr. Bush also questioned the justification for the rates local banks charge in the first place.
‘After all, banks in Cayman do not borrow from the Federal Reserve in the United States,’ he said. ‘They borrow from you and me; they borrow from the many savings and term deposits that many hard-working Caymanian families keep with them.’
Mr. Bush pointed out that according to its financial statements, Cayman National Bank earned interest at a rate of 2.5 times the amount it paid out, with the difference paying 85 per cent of all the bank’s expenses, including salaries and operating costs.
In addition, there is a significant difference between the interest rate a US borrower can get and the ones offered in Cayman, Mr. Bush said.
‘The US mortgage borrower can access a 20-year fixed-rate mortgage for six per cent; a 15-year mortgage for 5.68 per cent; and a five-year adjustable rate loan for 6.78 per cent.’
Mr. Bush said banks in the US base their loan rates on the costs of accessing loan funds.
‘A similar system of determining the real cost of funds should be implemented in Cayman to better monitor the lending activities of the local commercial banks as it relates to mortgages and other lending activities,’ he said. ‘I reckon that the real cost of funds in Cayman to banks is even possibly lower than what it is in the United States, thus the final loan mortgage bank rate should be in the seven per cent range.’
On the topic of another way of lowering the costs of living, Mr. Bush called on the Government to waive the import duty on fuel for Caribbean Utilities Company.
‘Most households in Cayman will readily tell you that one of the largest portions of their individual CUC bill relates to the… fuel adjustment surcharge,’ Mr. Bush said.
In accordance to its licence agreement with government, CUC is allowed to pass on the costs of fuel over a certain level – set in 1986 – to the consumer. As oil prices have increased over the years, so has the fuel adjustment surcharge.
Government charges import duty on the fuel CUC uses to generate electricity. Mr. Bush noted that the Government had a projected $17.5 million surplus and he suggested the Government could thus afford to waive the duty on the fuel CUC purchases.
In addition, Mr. Bush said local gasoline prices have ‘an unjustified mark-up’ that is adding to the cost of living.
Mr. Bush said Leader of Government Business Kurt Tibbetts recently said he had received data that pointed clearly to unfair pricing practices relating to gasoline.
‘What has happened to this information?’ Mr. Bush asked. ‘Now is an opportune time to put it to good use.’
Mr. Bush also commented on the costs of the CUC recovery surcharge relating to Hurricane Ivan in 2004 and the recent increase of water rates by the Water Authority.
‘We have a local economy where wages for the average household are stagnant, but on the other side of the ledger, we have runaway costs of living,’ he said. ‘It is adding up to undue stress and degradation of the very quality of life that is the hallmark of the most basics of any Government’s existence.’