For the first time in living memory, banks and deposit companies are lending more to Bermuda customers than they have in Bermuda dollar deposits, figures from the Bermuda Monetary Authority reveal.

The banks and deposit companies sharply increased their lending ? consisting of loans, mortgages and advances ? between the first quarter of 2005 and the first quarter of 2006 from $2.86 billion to $3.44 billion, an increase of $560 million or around 16 percent.

At the same time, Bermuda dollar deposits slipped from $3.58 billion to $3.42 billion or $16 million.

As a result, lenders had lent $20 million more to Bermuda customers than they had in deposits. In the first quarter of 2005, they had a surplus of $637 million.

The BMA said last week that it was monitoring the trend, and added that the deficit had been made up by the banks using their US dollar deposits.

The BMA said in a statement: ?The level of lending Bermuda?s banks have provided to Bermuda residents has continued to increase rapidly in recent quarters, reflecting the strength of the economy, the continuing building boom and relatively low interest rates.

?Recently this loan growth has been outstripping the growth of Bermuda dollar deposits since US dollar rates have firmed under the influence of US Federal Reserve action on interest rates.

?As a result the surplus of unemployed Bermuda dollars which has historically been held in Bermuda?s banks has eroded. The most recent quarterly numbers show that the banks? Bermuda dollar lending is beginning to exceed their Bermuda dollar deposit base, resulting in them employing some of their excess liquidity held in US dollar to support the growth of Bermuda dollar lending.?

The BMA said the growth reflected the strength of the 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?.

The BMA said it believed the banks were 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.

?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 BMA said. ?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.?

The BMA also announced that Bermuda?s money supply was $3.49 billion in the first quarter of 2006, a 4.2 percent decline on the same period in 2005.

The decline was the third consecutive year over year quarterly decline after declines of 5.34 percent in the fourth quarter of 2005 and 1.39 percent in the third quarter of 2005.

However, money supply, which consists of Bermuda dollar notes and coins in circulation and deposits with banks and deposit companies less their cash in hand, edged up 1.64 percent from the fourth quarter of 2005 when it was $3.43 billion.

The BMA also reported it had approved 386 applications for businesses to operate, including 282 exempted companies, 25 exempted partnerships, three permit companies, 12 unit trusts and 56 local companies.

The approvals came after the BMA approved 443 in the fourth quarter of 2005.

The number of collective investments schemes ? primarily mutual funds and unit trusts ? also rose from 1,182 in the fourth quarter of 2005 to 1,202 in the first quarter of 2006, an increase of 20. The number of portfolios rose from 2,043 to 2,212, an increase of 78. In some instances, an umbrella fund or umbrella trust will have a number of sub-funds or sub-trusts.

The total net asset value of the funds rose from $187.5 billion to $209.1 billion.