MAYBERRY Investments Limited (MIL) is increasing the interest rate charged on its margin credit facility from 12 per cent to 15 per cent effective today as the Bank of Jamaica (BOJ) continues to increase its policy rate.

A margin loan is one whereby a client borrows against the value of a financial asset held with a particular brokerage firm. These assets include stocks, unit trusts, repurchase agreements and bonds. MIL allows its clients to borrow up to 40 per cent of their portfolio value and pay the loan back as they dictate, without the need to pledge stocks at the Jamaica Central Securities Depository (JCSD). MIL’s margin loan portfolio expanded by 28 per cent to $2.13 billion in 2021 and earned $645.47 million in interest income on investments, loans and promissory notes at amortised cost.

“We still believe that our margin credit facility will be of great value to the discerning investor, and despite the current economic headwinds the stock market will continue to provide significant opportunities for wealth creation. We are always sensitive to the impact on individuals that any rate increase incurs,” the client advisory stated, which was signed by Chief Executive Officer Gary Peart.

A competitor brokerage house, Barita Investments Limited has increased the rates offered on repurchase agreements at least three times this year due to the BOJ rate hikes. Barita used to offer six bands on JMD fixed income funds and four bands for USD fixed income funds in January 2021. The rate up for $1 -$10 million was 2.00 per cent for 30 days and 3.00 per cent for 365 days. The $200 million and over was 2.60 per cent for 30 days and 3.60 per cent for 365 days. The rate on US$10,000 – $99,999 was 2.20 per cent for 30 days and 3.00 per cent for 365 days.

In February, the rate on $1.00-$19.99 million funds ranged from 3.50 per cent for 30 days to 4.15 per cent for 365 days. As of June 15, the rate up to $40 million ranges from 6.50 per cent for 30 days to 7.25 per cent for 365 days. The rate on $100 million and above is 7.00 per cent for 30 days and 7.75 per cent for 365 days. The JMD and USD funds only have three bands now. The rate on US$10,000 – $99,999 is 3.50 per cent for 30 days and 4.75 per cent for 365 days.

The Jamaica Observer’s Business Observer attempted to seek comment from executive vice-president of investments at Barita, Ramon Small-Ferguson earlier this year without success. Barita’s repurchase agreement (repo) liabilities has grown by 20 per cent to $51.86 billion, with its interest expense rising due to rising interest rates. Various advisors at different brokerage houses have mentioned that clients have been moving funds to Barita due to the higher repo rates.

MIL is one of the latest set of financial institutions to raise interest rates on credit facilities to clients as the BOJ has moved its policy rate tenfold since August to five per cent as of May. Sagicor Bank Jamaica Limited increased its variable rate loan portfolio by up to a maximum of 1.50 per cent on Monday with JN Bank Limited raising rates on some loans between 25 to 50 basis points earlier this month. National Commercial Bank Jamaica Limited (NCBJ), the VM Building Society, First Global Bank Limited and JMMB Bank Limited will all increase rates on their variable rate loan portfolios as of next quarter. NCBJ is only increasing the rates on its personal, and small and medium enterprise variable rate loan portfolio.

The BOJ’s monetary policy committee raised its policy rate by 50 basis points on Wednesday to 5.50 per cent, the seventh rate hike since August 2021.. Point-to-point inflation moved downwards from 11.8 to 10.9 per cent between April and May, despite inflation moving up 0.3 per cent on a month-to-month basis. The BOJ’s May quarterly monetary policy report stated that deposit-taking institutions’ private sector credit is expected to weaken based on forecasts up to March 2024 from 12.9 to 10.2 per cent.

“Firms will try to delay refinancing as much as possible until rates decline, especially if they had locked in lower fixed rates previously. Those with fixed rate debt are in the best position as they have locked in the lower rates. Those with floating rate debt are most at risk because these will reprice at higher rates and cause their debt servicing obligations to rise. However, given the current climate, raising capital through equity may become relatively more attractive than debt at a higher cost,” said manager of research, business planning and investor relations at VM Wealth Management Limited (VMWM), Nicole Adamson. VMWM just increased the interest rates on their margin loan facilities ranging from 11 to 13 per cent for one to five year loans. The rate on the fifth year has moved from ten to 13 per cent.

“One of the impacts of the BOJ’s actions in relation to interest rates is a reduction of liquidity in the market. The mopping up of liquidity coupled with the rising cost of capital will reduce the ability of the market to fund or take down large raises. Investors who participate in equity offers will require higher rates of return from issuers, which will also impact the valuation multiples that these issuers can access capital at. Rising interest rates will negatively impact the expected returns of new projects and may make them no longer attractive. Additionally, as mentioned before, rising borrowing costs may also impact the viability of projects that depend on debt to fund them,” said vice-president of investment banking at NCB Capital Markets Limited (NCBCM), Sekou Crawford earlier this year.

NCBCM had a repo special in April which saw an advertised JMD rate of 4.5 per cent for 90 to 180 days on new funds, and 3.5 per cent for 90 to 180 days on USD funds. The minimum investment amount was $1 million and US$10,000. NCBCM raised repo rates in December for clients, with Chief Operating Officer Tracy-Ann Spence noting that some clients have been demanding higher rates.