TRIMMING OF PRIME RATE TO BOOST AREA

CAPE GIRARDEAU -- Area commercial and business loan customers will realize immediate benefits from the lower prime interest rates.

The rates were chopped from 9.5 to 9 percent this week after the Federal Reserve cut its discount rate from 6.5 to 6 percent Friday.

And area financial representatives predict that if the rates stay down, other consumer loan customers could realize some benefits in the near future, including home mortgages and auto loans.

The latest decline in interest rates, which are now at their lowest level in more than two years, was the second drop in about a month. The prime rate stood at 10 percent at the start of 1991, and was lowered to 9.5 percent on Jan. 2, a few days after the Fed cut its discount rate to 6.5.

The discount rate is the interest the Fed charges on short-term loans to banks and is one of the factors in the banks' cost of funds. When those costs fall, banks can trim the interest they charge on a number of business and industrial loans.

The last time the prime rate was nine percent was in July of 1988.

The prime rate is watched closely. Bankers use it as a basis for calculating loans to businesses, and for determining many adjustable-rate consumer loans.

Monday, several major banks chopped their prime rates to 9 percent, meaning lower rates for some business borrowers.

"The benefits to business and commercial loan rates which are indexed to the prime rate will be immediate," says Bill Yuede, assistant vice president and commercial lender at Boatmen's Bank of Cape Girardeau. "Typically, many business will float just over prime, and as that rate drops, the businesses' rates will drop, often during the same day."

Allen Schaper, executive vice president and senior loan officer at Mercantile Bank of Cape Girardeau, and Charles Daniel, president and executive officer of Capital Bank here, agree.

"All loans which are tied to the prime will see immediate interest breaks," said Schaper. "Sometimes, it takes a while for the full impact of a prime rate decrease to be realized in the mortgage and consumer field, but the commercial customers will realize drops the same day."

Schaper added that Mercantile Bank of Cape Girardeau dropped its mortgage and auto loan rates this week. "We had been anticipating a drop in the prime."

"Mortgage and consumer rates have been slowly coming down for a while," said Daniel. "Typically, auto loan rates don't go up as fast as business and commercial rates, and they won't come down as quick."

Daniel pointed out, however, that auto loan rates had been on the downswing over a few months.

"It could be a while before the prime rate drop will have any noticeable effects on real estate," said Carl Blanchard of Coldwell Banker Blanchard-Ryan Realty and president of the Cape County Board of Realtors. "But, we anticipate that interest rates will be favorable."

Blanchard said that January had been a "good month" for realtors, after the first week of the year.

"We had to wait through the earthquake scare and the Christmas holidays during the final quarter of 1990," said Blanchard. "But, inquiries regarding property both selling and buying questions have more than tripled since that first week of January."

Fixed home loan rates can range between 9 to 9.5 percent, depending on points and length of loan. Some fixed rates are now available for as low as nine percent on a 15-year note and a couple of points.

Adjustable-rate home loans could be modified and are already available at 8.25 percent with certain points and terms.

With the drop in interest rates, bank and thrift stocks have zoomed in the stock markets this week, which marks a turnaround for the nation's financial institutions. Bank stock prices soared as much as 20 percent Monday.