Business

NDX hits NCB's bottom line

BY JULIAN RICHARDSON Assistant Business Co-ordinator richardsonj@jamaicaobserver.com

Sunday, April 28, 2013    

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• Financial group posts 13 per cent drop in 2Q earnings

• Market still not right for NYSE listing

NATIONAL Com-mercial Bank (NCB) on Friday reported a 13 per cent decline in second quarter net profits, with the financial group being adversely impacted by its participation in

two debt exchanges over the period.

For the quarter ending March 31, 2013, the firm posted net profits of $1.7 billion, compared to $2 billion over the corresponding period last year. Operating income was down eight per cent to $8.6 billion behind a $728.7-million loss on foreign currency and investment activities, compared to a

$1.4-billion gain last year, reflecting losses on $125 billion worth of GoJ securities exchanged in the National Debt Exchange (NDX) and private debt exchange.

While the primary impact arising from the debt exchanges is a reduction in coupon rates and the extension of tenor of the securities, NCB said that the market value of the securities received was lower than the ones tendered.

"The results for the quarter under review reflect, in a major way, the sacrifice that this institution has made through its participation in the recently concluded NDX as well as the subsequent private debt exchange," said Patrick Hylton, NCB Group managing director, at an investor briefing at the NCB Wellness and Recreation Centre on Friday.

However, the impact of the debt swaps over the March quarter was offset by a nine per cent increase in net interest income to $5.8 billion, which the firm reported was due to growth in loans and investments; a 12 per cent rise in net fee and commission income to $1.8 billion attributed to higher card transaction values and a more than doubling in premium income to $1.5 billion arising from the inclusion of general insurance premiums with NCB's acquisition of Advantage General Insurance Company in February.

Operating expenses increased by $63 million to $6.87 billion, the marginal increase coming against the background of a 53 per cent decline in provision for credit losses to $493.7 million, due primarily to losses from a large loan last year.

Despite difficult market conditions, Group CFO Yvonne Clarke said NCB's diverse business model puts the company in a strong position to achieve growth.

"It has been a challenging period... and not particularly conducive to growth," Clarke said.

"However, we remained focused on our priorities and (areas) that are within our control, and were able to achieve growth and success in a number of areas," she added.

NCB provides commercial banking services to consumers, small and medium-sized enterprises (SME), large corporations and Government. The firm also provides wealth management services inside and outside of Jamaica, life insurance, general insurance, mortgages and investment, and pension fund management.

The retail and SME business contributed the most, 40.4 per cent, to the group's operating income for the six-month period ending March 31. Operating profits in the segment of $342 million represented an increase of 11.2 per cent over the corresponding period last year, driven by increased interest income and fee and commission income arising from growth in the firm's loan portfolio -- totalling $128.8 billion (net of provision for credit losses) at the end of the review period, 25 per cent more that at the end of March 2012. NCB, the largest commercial bank in Jamaica, holds the largest market share for loans in the industry at 38.7 per cent and second- largest in deposits at 38.3 per cent.

NCB's insurance and pension fund management segment now contributes the second most -- 19.3 per cent -- to operating income at the group, followed by wealth management at 16 per cent. Year-to-date operating profit in the insurance and pension fund management decreased by four per cent to $1.4 billion, while operating profits in wealth management jumped by 6.4 per cent to $2.3 billion behind increased net interest income and increased dividends received, reported the company.

Meanwhile, going forward, Hylton said the imminent International Monetary Fund (IMF) agreement should further alleviate concerns and uncertainties that affected the industry over the review period.

Given the challenges that have arisen in the industry, Hylton said NCB will adjust its operating model going forward to include more efficiencies and aggressive selling initiatives, among other measures.

"Over the next few months you will see this strategy unfolding with a series of initiatives aimed at improving sales efficiency, service quality and growth in our various business lines," he said, adding that "the deployment of new and improved technology will be a key enabler of this strategy".

Hylton could not state when the company would revisit listing on the New York Stock Exchange (NYSE), which the company was forced to postpone in February after investors had indicated concerns, given the uncertainties in the domestic economic environment at the time.

"Timing for for a return to the market has to be informed by sentiment, by the clarity around the economic programme, and by the position of the institution," Hylton said. "I am not in a position today to say whether it will be next quarter or the following quarter... the prerequisites for us doing that are not in place today."

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