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OBA warns of higher costs for borrowers

OBA leader Cole Simons tells consumers: brace yourself (File photograph)

The leader of the OBA has warned consumers with variable interest-rate loans to brace themselves for higher payments, in light of the latest US Federal Reserve interest-rate increase.

“Overdraft fees will increase, and new overdraft facilities will be more expensive,” said Cole Simons, a vice-president at Butterfield Bank.

Mr Simons was responding to the raising of the federal interest rate by 0.75 per cent last Wednesday. It was the second such increase in six weeks, after June numbers pegged the US annual rate of inflation at 9 per cent.

Mr Simons said, as a banker, the increase came as no surprise. He thought the decision would impact both consumers and businesses in Bermuda.

He said consumer loans for cars, bikes and household items will place more stress on families as financing costs will increase.

“Unfortunately, the need for stable and ongoing financing is something that business owners are going to face for the foreseeable future,” Mr Simons said.

He said customers with debts may have less income to spend as they are paying more interest to their lenders.

“With less income to spend, sales will decrease and companies with overdrafts will experience higher costs as they must now pay more interest,” he said.

“Companies may trim their overall expenses to compensate for the increased debt capital financing costs by reviewing and reducing some of their human resources.”

Mr Simons attributed these higher costs largely to the continuing supply-chain issues and labour shortages.

“Thus, small business debt will become more expensive and their monthly payments on their variable loans will increase, which may drain their monthly cashflow, in turn.

“This may force businesses to restructure their companies to better manage their operational costs,” he said.

He suggested that, where possible, families reduce their living expenses by cutting back on the use of credit cards and try to pay off some of their existing loans.

“Where possible, they should also examine the possibility of refinancing with fixed-rate loans as further rate hikes are expected this year,” he said.

“On the small business side, if the debt burden is a bit heavy, business owners should consider converting some of their corporate debt to equity financing with the help of private investors. If possible, they can also curtail the use of their credit cards and take guidance from Government’s Small Business Development Agency.”

Comment for this article was also sought from the finance minister, but no response has so far been received.

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Published August 03, 2022 at 7:49 am (Updated August 03, 2022 at 7:49 am)

OBA warns of higher costs for borrowers

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