Banks are lending out significantly more Bermuda dollars than they hold in deposits — but the Bermuda Monetary Authority (BMA) sees little cause for concern about the imbalance right now.

A burgeoning demand for mortgages and loans, on the back of a construction boom, has led to increasing competition between lenders and the arrival of 100 percent mortgages, with no down-payment required.

Many Bermudians have bought properties as investments and are also taking out home equity loans against the increased value of their home and these factors have also increased the amount being borrowed.

The latest BMA Regulatory Update, which shows figures for the period through the quarter ending September 2006, clearly illustrates the trend.

The statistics show that by the end of the third quarter of last year, Bermuda’s banks and deposit companies held $3.48 billion in deposits, while they had lent out a total of $3.7 billion.

This compared to the same quarter of 2005, when deposits were slightly higher at $3.51 billion, while money loaned out was more than $400 million less, at $3.28 billion.

The latest figures show a the percentage of deposit liabilities lent was 106.3 percent — a figure that had soared from 93.5 percent a year earlier.

Financial regulator the BMA said in response to questions from this newspaper that the figures reflected the strength of the Island’s economy, the continuing building boom and relatively low interest rates.

“Recently this loan growth has been outstripping the growth of BD$ deposits since US$ rates have firmed under the influence of US Federal Reserve action on interest rates,” the e-mailed statement said.

“As a result the surplus of unemployed BD$ which has historically been held in Bermuda’s banks has eroded. For the past year the banks’ aggregate BD$ lending has exceeded their BD$ deposit base, resulting in them employing some of their excess liquidity held in US$ to support the growth of BD$ lending.

“This is a sign of both the strength of the local economy and the welcome increase in competition in Bermuda’s banking market in the last couple of years, which has benefited all consumers of banking services.

“All indications are that the banks are managing this trend effectively, pursuing lending and reserve management policies that remain conservative and which do not place any undue risk upon their overall capital positions.”

But the BMA said it intended to keep a close watch on the trend.

“As Bermuda’s independent financial regulator, the BMA is keeping this situation under review to ensure that the risks the banks take are properly monitored and controlled,” the Authority’s statement added.

“The BMA’s rules, among other things, serve to ensure that the banks lend with proper prudence and also that they manage their balance sheets prudently; this would include ensuring that the banks do not expose themselves to currency or other mismatches that would be inappropriate relative to their capital resources.”