Capital G Bank mortgage holders will see their repayments rise from next month when the bank will raise its lending rate by 0.25 of a percentage point.The move, which takes effect on February 1, will take the bank’s residential and commercial lending base rate up to 3.5 percent and will bring Capital G into line with HSBC Bermuda, which raised its residential lending base rate to 3.5 percent last September. Butterfield Bank’s base lending rate is 3.75 percent.Also on February 1, HSBC Bermuda’s commercial base lending rate will rise by quarter of a percentage point to 4.75 percent.Capital G Ltd. chief executive officer John Kephart told The Royal Gazette that his bank’s increase reflected the greater lending risks in the current struggling economy.He added that he sympathised with borrowers who were struggling to make repayments on time and urged any client in that situation to come in for a chat with a bank representative - the earlier the better - to seek a solution.“Basically the lending base rate reflects the risk and the cost of funds,” Mr Kephart said. “When funding costs are higher, then lending costs have to go up.“When the economy goes through difficult times, there is more risk. Cash flows are not as strong and there is a greater chance of not getting paid back. If somebody’s borrowed 80 percent of the purchase price to buy a property, and now it’s worth only 80 percent of what it was, then that also increases risk.”Both Butterfield and HSBC have also publicly acknowledged an increase in mortgage delinquency. Mr Kephart said all the lending institutions were determined to avoid foreclosures.“None of us in the banking community want to see people taken out of their homes, because of issues related to non-payment of debt,” Mr Kephart said. “It’s not good for us and it’s not good for the jurisdiction.“This is an industry-wide issue. All three of us [lenders] are quite aggressive with our borrowers, in asking them to come and see us when they start to have problems, so we can ask them what’s going on and how we can help.”A restructuring of the loan could sometimes help borrowers to get through a rough patch, he said.The bank has also seen customers paying down their credit card debt as times have got harder - a sensible step that will give them greater financial flexibility in the coming months, Mr Kephart said.Capital G recently grew in size after completing an amalgamation with deposits, loan and securities firm First Bermuda Group (FBG). The two institutions will eventually operate under the Capital G banner after their systems have been integrated, a process the bank hopes to complete by the end of June.Mr Kephart said all of the approximately 20 FBG staff had kept their jobs after the combination.The CEO expected the economic difficulties to continue this year, as the ripple effect of a reduction in the number of people on the Island spreads through the community, in the form of lost rents and lost spending.“I think people will have to really change the way they live,” Mr Kephart said. “We can’t manage the higher cash flow living that we had when everything was fully rented out. This is going to be a tough year when people have to haul up their belts.”People were already seeking ways to cut costs, he said, such as riding scooters rather than taking the car to save on fuel, eating out less or cheaper, looking for bargains and curbing their travel plans.Collaborative action is needed to encourage international business, the biggest contributor to the economy, Mr Kephart believes.“We have a lot of competition from other jurisdictions and we need to step up our game and play by the new rules,” he said.“If we want to compete with Switzerland, we have to work out what is attracting companies up there and what we need to do to make Bermuda more attractive.”The issues were well known and had frequently been aired, he added. Groups including the Association of Bermuda Insurers and Reinsurers, the Association of Bermuda International Companies, Business Bermuda, Bermuda First and Government were focused on finding solutions. Mr Kephart feels that the Premier appreciates the gravity of the situation.“I believe that Paula Cox knows what needs to be done and is focused on the solutions,” he said. “The tone is completely different.“We have a lot of very bright people involved in these discussions. I remain optimistic for Bermuda.”