Principals of Capital and Credit Financial Group (CCFG) have responded with strong denial that the institution is in trouble and is being plagued by billions of dollars in loan losses.

Curtis Martin, deputy Group president and CEO, Capital and Credit Merchant Bank (CCMB) said that contrary to media reports, the institution did not have $4 billion in non-performing loans and delinquent accounts were a small fraction of the loans that were classified as past due.

“Loans and advances represent a very small portion of our total portfolio,” Martin said. “Of the $2.86 billion in non-performing loans, a significant part, approximately 83 per cent, were performing as per their restructured terms and these accounts are collateralized. So the expectation is that in a worst case situation there should be significant recovery of balances,” he said.

Martin explained that the misinterpretation was as a result of a Bank of Jamaica (BOJ) regulation that requires that where at any time principal and arrears are in excess of 90 days due, the loan must be classified as non-performing and remain on the books as such for 12 months, even where the loans are re-negotiated and regularised by the borrowers.

“Of the $2.8 billion in non-performing loans, that’s the BOJ regulation, approximately $2.3 billion or 83 per cent represent restructured facilities that were performing as per the restructured terms to be liquidated from revised cash flows of the business, the personal resources of the principals and/or the orderly disposal of assets,” he said. “These are not facilities where we are incurring any losses. These are facilities where customers have pledged additional assets, they have pledged additional cash flows, they have taken resources from their personal business. They have entered into an arrangement with the bank where there will likely be a structured disposal of these facilities. And its critical to know that. Persons just look at a number and say ‘bam’ these are losses. That is not the case. These are real businesses that are operating, that are employing hundreds of persons, that we are working with to ensure that they continue as a viable entity and maintain employment.” He said the loans were made to businesses in construction, hotel/resort development and retail.

CCFG’s Annual Report 2010 showed that total loans classified as past due but not impaired as at end December, was $3 billion, of which $1.96 billion fell into the classification of ‘more than 90 days’. However, Martin said that total impaired loans are $902.8 million of which $565.3 million are now classified as current and are being repaid.

“Adding these two numbers and making a big headline that $4 billion non-performing is flawed and that is where the error originated from. So what we have been having is that it is a false premise and persons have been writing and drawing conclusions under that false premise,” Martin told shareholders, analysts and journalists representing the offending newspapers at the institution’s Annual General Meeting (AGM) on Wednesday.

He also defended the Bank’s status as being ‘solid, safe, secure’, suggesting that even if there is a case of dramatic loan losses, the company, which has had an unprecedented 64 consecutive quarters of profit in 16 years of operation, holds sufficient assets to cover such losses by up to three times.

The Group saw pre-tax profits improve by 68 per cent over 2009 to 483.87 million, but net profit remained flat at $287.62 milion for 2010 due in part to increased taxation charges.

Martin reported that as of December 31, the Banking Group which consists of the Merchant Bank, the securities company and the fund management company reported total assets of $39.49 billion. Of that amount, $29.78 billion or 75.5 per cent, represents investments in Government of Jamaica (GOJ) securities, $1.51 billion in cash reserves and $6.44 billion in loans and advances, which is 16.1 per cent of total assets.

“From the Banking Group perspective, loans represent a relatively small percentage of assets,” Martin said

As a stand alone, however, the Merchant bank has total assets of $23.1 billion, of which government and other securities represent $14.34 billion or 62.34 per cent of assets, cash $1.22 billion or five per cent of assets, and loans and advances $6.23 billion or 27 per cent of assets.

Martin, in response to the controversial articles which said that non-performing loans, at $2.86 billion, actually represent 12 per cent of CCMB’s assets and 6.9 per cent of the Banking Group’s assets.

“What is being demonstrated is that while we are in the loan business, loans represent a small proportion of our total asset base. The bulk of our income comes from our treasury operations and government securities and our investments in short term securities and cash,” he said.

“The value of the assets that we have ranges from two to three times the value of the loans. Therefore we expect minimal losses on those facilities. But being conservative the organisation as at December made provisions of $1.04 billion.”

Group chairman Ryland Campbell who delivered the opening remarks at the AGM, characterised as “spurious, contemptuous and damaging” the articles published in the financial press and chastised those whom he said may have ulterior motives for wanting to see the institution fail.

“There are only two of us left in the merchant banking sector so I guess for that reason we are targets,” Campbell said.

But Campbell assured the shareholders, many of whom said they had come just to know the truth about CCFG’s state of affairs, that the Group which comprises CCMB, Capital and Credit Securities Limited (CCSL), Capital and Credit Remittance Limited (CCRL), Capital and Credit Fund Managers (CCFM) and Capital and Credit International Inc.(CCII) had “no liquidity problems”, “remains profitable” and is “in control of its affairs”.

He said despite ‘sensational’ reports of an impending take-over of the financial institution, his desire to engage in ‘strategic partnerships’ with other financial institutions was not new and was put on the table as far back as May 2007.

“What we are seeking to do and what has come upon the sector and Capital and Credit based on its ownership structure, that we cannot move forward to achieve the objectives based on what we were accustomed to simply because the landscape has changed and we need more support,” Campbell said. “The decision to seek strategic alliances is not new.”

Reports have tipped PanCaribbean, JMMB and First Global Bank as institutions which are contemplating a buy-out of CCMB. Campbell did not dispel the claims but refused to give further details on any discussions regarding the take-over bid.

“We are looking for a company with deep pockets and some reach that could take controlling interest of Capital and Credit and help us to move forward,” Campbell said.

He also assured stakeholders that the Bank had hired a retired commercial banker with significant experience in loan recoveries to work along with the team at CCMB to bring in outstanding amounts.