Having just refinanced nearly US$37 million in debt held over from previous government administrations, the Cayman Islands Development Bank is back in business.
The government-appointed entity had shuttered its loan business for nearly two years at the start of the Progressives-led government’s term and had received advice from consultants to close it down permanently unless “the political will could be found” to fund the cash-strapped organization.
Financial Services Minister Wayne Panton indicated the will had indeed been found for two loan programs, one targeting small- to medium-sized businesses and the other for civil/public servants.
“These programs have been structured in such a way as to maximize the assistance we can give, while not imperiling the bank’s financial stability through bad decision making, as had been the case under the previous administration,” Mr. Panton said.
That remark drew the ire of Opposition Leader McKeeva Bush who said Wednesday that the former Progressives-led government was responsible in part for running up the debts the bank accrued between 2005-2009, after the party’s leadership initially criticized Mr. Bush’s United Democratic Party government for creating the development bank.
“The [development] bank’s position worsened during 2005-09,” Mr. Bush said. “I had to bring some people in there to clean it up. Of course, as usual, they try to make it appear this all happened during the UDP administration.”
Nonetheless, Mr. Bush said he supported the government’s efforts to restart the development bank loan program. “That’s what the Cayman Islands Development Bank was set up to do, assist small businesses and the man on the street,” he said. “I hope it’s more than just PPM supporters … who get this.”
The loans under the new program can total up to $100,000 for owners of small- or medium-sized businesses “who need the capital, but may have some difficulty finding it.” The business loans can be paid back in a variety of ways and carry a 10 percent interest rate.
Civil and/or public servants can receive loans of up to $20,000 that can be paid back over a period of up to six years, as long as the repayment period does not extend past the person’s normal retirement.
The personal loans would provide the ability to refinance currently held high interest loans and would “encourage personal and financial stability,” according to Mr. Panton.
“It is wonderful to be able to help our small-business community succeed and prosper, but it is perhaps more gratifying to be able to help at least some individuals who are struggling with heavy debts,” the minister said. “We have heard many people tell their stories about how they landed in hardships, and they are as difficult to hear as they are to tell.”
The Progressives-led government has been under some political pressure in recent months from a relatively small, but vocal group of Caymanians whose homes were in danger of being foreclosed upon due to non-payment.
In some of these instances, the individuals who faced foreclosure had been paying down loans for more than a decade and ran into financial difficulties due to medical problems or the breakup of the family unit.
The government is also more generally worried about the effect continuing foreclosures will have on the Cayman Islands housing market.
Following a record year of foreclosures on properties in 2013 – involving 65 property foreclosures – concerns arose again this year about the number of properties that had been issued demand notices by lenders.
From the beginning of 2015 through mid-August, demand notices have been issued by Cayman Islands financial institutions on 39 properties that hold a total of $8.45 million in loans.
The properties, whether businesses, homes or vacant land, are held in the names of 51 people.
At the time the demand notices were issued, they were $839,970.91 in arrears.
The Legislative Assembly voted unanimously in August to enable the refinancing of US$36.8 million in debt from loans made by the bank to individuals that had not repaid.
The government agreed to back a 10-year loan facility at a variable interest rate of 1.425 percent by FirstCaribbean International Bank, according to the refinancing terms.
Finance Minister Marco Archer said principal repayments on the refinanced debt would not have to be made for the first three years of the loan. Mr. Archer also said the renegotiated deal would save Cayman more than $360,000 in annual interest costs.
The refinancing deal consolidated 11 separate loans, all taken out at varying interest rates, that cost taxpayers more than $800,000 a year in interest, Mr. Archer said.
Mr. Archer said the previous loans, known as bullet or balloon payment loans, all came due on June 30, 2015 so the refinancing arrangement was necessary unless the government had wished to make a full payment of more than $30 million all at once.