Business

NCB going big on forward buy contracts for MSMEs amid sliding Jamaican dollar

BOJ working with NCB on its portfolio demands for FX

BY DURRANT PATE
Observer business writer

Wednesday, November 13, 2019

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National Commercial Bank (NCB) is now gearing up to go big on developing forward buy foreign exchange contracts for small businesses, which are being particularly hard hit by the sliding Jamaican dollar.

Responding to questions from the Business Observer at its quarterly investors' briefing last Friday, officials at the bank disclosed that while it has been engaged in forward buy contracts for large businesses, not much attention was given to micro, small and medium enterprises (MSME). However, this is about to change as NCB, which is one of the leading players in the foreign exchange market, is building a market for small businesses to meet their FX needs.

Forward contracts are used to lock in the price of hard currency today for future delivery, giving certainty to businesses that have future foreign exchange obligations to fulfil.

The NCB principals indicated that the move is an attempt to bring back stability to the FX market whilst addressing the volatility concerns now permeating the market.

They made the point that the market for forward contracts is under-developed, adding that as the market develops NCB will be pushing out new products and services to meet market needs.

NCB Group Deputy Chief Executive Officer and Chief Financial Officer Dennis Cohen admitted that greater use of forward contracts for foreign exchange would smooth out some of the volatility and predictability in the FX market. He said the BOJ is already introducing a FX platform on which all these forward contracts would be reported so there is openness and transparency in the buying and selling on the forward market.

NCB AMONG THE BANKS WITH HIGH FX PORTFOLIO DEMANDS

In the meantime, the Business Observer can confirm that NCB is one of the two banks with which the Bank of Jamaica (BOJ) is now in discussions regarding their portfolio demands for foreign exchange.

Two weeks ago, BOJ Governor Richard Byles disclosed that he is in talks with two banks with high untimely portfolio demands for FX to set up a forward market with them to deal with their portfolio demands.

The BOJ Governor blamed what he regards as the high untimely portfolio foreign exchange demands of some banks for the bumps being experienced in the foreign exchange market.

Positing that Jamaica is earning enough foreign exchange to satisfy local demands, Byles argued that these high portfolio demands by banks for acquisitions, investments and other purposes are creating an artificial shortage of foreign exchange, thus creating a spike in price.

He pointed to US$800 million in portfolio demands, in which some banks are heavily buying hard currency, thus creating volatility in the market.

He made the point that there is no dire shortage in the FX market but what is happening is the need for better management of the existing foreign exchange flows.


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