VM Investments to hike loan rates

VM Investments will be increasing the interest rate charged on loans by 200 basis points (2.00 per cent) effective September 1, 2022.

VICTORIA Mutual Investments Limited (VMIL) will be increasing the interest rate charged on loans by 200 basis points (2.00 per cent) effective September 1 as the Bank of Jamaica’s (BOJ’s) policy rate continues to climb and liquidity tightens in the market.

VMIL has been aggressively growing its loan portfolio over the last two years with the portfolio expanding from $1.79 billion in 2020 to $3.48 billion at the end of 2021, a 95 per cent jump. This was made up of $1.93 billion in margin loans, $1.58 billion in corporate loans and $29.56 million in insurance premium financing. The portfolio expanded to $4.37 billion at the end of the company’s first quarter (January to March).

“In light of the rate increases, we have seen rates in the money market rising and liquidity tightening. While we understand the current economic challenges that many of our clients are facing, VM Investments, regrettably, has to adjust our rates due to the changes in market conditions,” the notice sent to clients stated.

With respect to margin loans, the rate increases will be applicable to all loans disbursed by VMIL prior to June 20. This comes after VMIL recently adjusted its margin rates while its parent, The Victoria Mutual Building Society (VMBS), increased interest rates on loan portfolio up to a maximum of 1.50 per cent on July 1. VMIL’s margin loans range from one to five years with a minimum of $250,000 which can be disbursed within 48 hours.

VMIL’s margin loan rate for a five-year loan prior to June 20 was 10.00 per cent. However, after June 20, a one-year loan was for 11 per cent while the five-year loan was for 13 per cent. VMIL sold $708.37 million in margin loans at the end of 2020 to its different unit trusts which resulted in it recording a gain of $45.23 million. The Victoria Mutual Wealth Management (VMWM) unit trust property fund purchased $599.61 million of the loans, the VMWM money market fund purchased $19.99 million while the VMWM equity fund had a margin loan payable of $357.37 million at the end of 2020.

According to a post on its Facebook page, “A Margin Loan is an interest-bearing loan that can be used to gain access to funds for a variety of reasons that cover both investment and non-investment needs.”

A margin loan allows someone to borrow against the value of a financial security or asset held with a broker. Securities listed that can be used as collateral includes equities/stocks, bonds, repurchase agreements (repos) and managed portfolios such as unit trust products. Clients can borrow up to 50 per cent against the face value of equities, 60 per cent for the goal maximiser, 70 per cent for bonds and bond-related unit trusts plus the property fund and 80 per cent for repos.

VMIL is one of the most recent firms to hike interest rates on margin loans and one of several financial institutions raising interest rates on loans. Mayberry Investments Limited increased its margin loan rate from 12 to 15 per cent on July 1 as it cited the BOJ’s rising policy rate as one factor. First Global Bank Limited (FGB) had communicated to clients that it would be raising rates on July 4. A client’s rate adjustment seen by the Jamaica Observer showed a rate hike of 100 basis points which will take effect on July 29 for that individual. National Commercial Bank Jamaica Limited (NCBJ’s) personal and small and medium enterprise (SME) clients saw their variable rate loans increase on July 19 while JMMB Bank (Jamaica) Limited’s rate hike of up to a maximum of 1.50 per cent takes effect on August 1 for variable rate loans.

The BOJ increased its policy rate to 5.50 per cent on June 30 which is above the 0.50 per cent rate seen in August 2021. Its monetary policy committee will decide on changes for the policy rate at its August 18 meeting. The BOJ has cited that core inflation was 9.7 per cent in May when the point-to-point inflation was 10.9 per cent. Inflation was up 0.8 per cent in June while point-to-point remained unchanged.

The BOJ’s 180-day treasury bill yield in July 2021 was 1.18 per cent with the most recent auction held on July 13 coming in with a yield of 7.89 per cent. VMIL has a $1 billion unsecured variable rate bond set to mature in March 2023, it was fixed at 7.75 per cent for the first two years before resetting to 2.50 per cent plus the BOJ 180-day treasury bill yield annually. It also has $3.23 billion in fixed and variable rate bonds at the end of 2021.

VMIL is set to be paid by next month a $700 million senior secured bridge loan from Kingston Properties Limited which recently completed a $1.55 billion additional public offering arranged by VMWM. The loan was for 13 months and had an interest rate of 6.4 per cent. QWI Investments Limited currently had $335.69 million in margin loans payable to VMIL at a rate of 7.50 per cent.

VMIL’s first quarter net interest income was marginally down to $79.77 million despite its interest income rising by 30 per cent to $334.57 million. The group suffered an operating loss of $12.08 million compared to an operating profit of $107.85 million due to the volatility in its investment portfolio locally and internationally which led to unanticipated losses. Net profit shrunk by 91 per cent to $8.26 million. Total assets came in at $30.22 billion with $393.56 million in cash and cash equivalents while shareholders equity closed the period at $3.70 billion.

VMIL is the investment arm of the VM Group. It has a wholly owned subsidiary, VMWM, a stake in 30 per cent associate Carilend Caribbean Holdings Limited and recently acquired a stake in Home Choice Enterprises Limited. VMIL shareholders will meet on August 10 to consider the scheme of arrangement which will see VM Financial Group becoming the direct parent of VMIL and VM Group Limited becoming the ultimate parent company. This change is subject to approval by members and the Supreme Court of Jamaica and a 75 per cent majority by shareholders present or by proxy at the meeting. VMBS currently holds 80 per cent of VMIL and will shift from a mutual building society to a proprietary building society.

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