Some members of the New Building Society (NBS) are questioning the motive behind its decision to raise interest rates for loans above $8 million from 6.95% to 9.95% per annum.
But senior officials of the society who declined to be identified have rejected any suggestion that there was anything sinister behind the move saying the decision was made by the NBS Board of Directors in keeping with recent changes in the society. The officials also pointed out that the Board of Directors has the legal right to make such a decision.
The increase of the interest rate to 9.95% per annum on loans ranging from $8,000,001 to $12 million has been implemented from January 1 of this year. Last year, Chairman of the Board of Directors Dr Nanda Gopaul had announced that the society was increasing its maximum lending rate from $8 million to $12 million. Prior to this recent increase, any loan above $3 million attracted interest at a rate of 6.95% per annum. Senior officials suggested that the decision to increase the interest rate was directly influenced by the increase in the lending ceiling of the society.
Stabroek News has seen a letter sent by NBS to one of its clients indicating the increase in interest rates. The letter, which was dated September 18, 2009 said “that effective January 1, 2010, mortgages $8,000,001 and over will attract an interest rate of 9.95% per annum.” The letter also stated that mortgages of $3 million would attract interest of 4.95% per annum, while those ranging from $3,000,001 to $8,000,000 will attract interest rates of 6.95%.
Jinnah Rahman is one of NBS’s clients who has been affected by the increase in interest rates.
He is upset that such a drastic move was taken without consultations with members of the society. According to him, this is a matter he has raised with officials of the society but is yet to receive a satisfactory response.
However, senior officials at the society told this newspaper that the Board of Directors was free to increase the interest rates of the society and they said this was implicit in the agreement that clients had to sign prior to a loan being approved.
This newspaper was shown a copy of this document. Customers are requested to agree to terms which state: “The rate of interest will be subject to alteration at the society’s discretion at any time by three months’ notice being given”. In the event of any such alteration, the society agrees that the customer “may redeem the mortgage at the expiration of the said three months’ notice, provided that within six weeks of the serving of the notice,” the society is informed in writing of the desire to redeem. It further stated that the amount of the monthly instalment would not be increased during the three-month period.
The officials said several letters had been sent out and those customers who had concerns visited NBS and these issues were settled. Asked how many customers would have been affected by the increased rates, the representatives said they were not in a position to provide such information.
Meanwhile, Chartered Accountant Christopher Ram was critical of the move by the society and stated that “while it was not unlawful it is unreasonable”. The implications of such a decision, Ram said, suggest that the society is forgetting its true roots as a housing society. According to him such a drastic decision should not have been taken without first discussing the issue with the members of the society.
Ram, who is also an executive member of the Concerned Members of NBS, said the actions of the establishment serve to make it “uncompetitive” with the commercial banks as he pointed out that securing a mortgage from the society was a far stricter process than getting one from a commercial bank.
He also queried the rates that are being charged, and said that both the nominal and effective rates should be clearly disclosed to members of the society.
He was also concerned about the difference $1 could make in the amount of interest a borrower would have to pay. Based on the new interest rates, a customer with an $8 million mortgage would pay $556,000 in interest per annum while a loan of $8,000,001 would result in interest accruing to $796,000.10 per annum. The disparity in the amounts was a great concern to Ram.
Questioned about possible reasons for the increase, Ram said that it could be a case where NBS was trying to restrict lending by increasing rates.
This, he said, made lending more expensive and less attractive to potential customers. Further, he said that this may also be a way of cross-subsidizing the institution and enhancing its profitability.
According to him, this could be used to help finance some of the less profitable initiatives that the NBS would like to pursue. He said that this is a matter that the Concerned Members of NBS will be actively addressing.
However, NBS officials rejected these suggestions and said that the society was in very good financial standing and had no ulterior motives.
