ALREADY impacted by a weak domestic economy, financial institutions have been rocked by two debt exchange programmes since the start of the year, but are resolute in finding new income streams to alleviate the fallout from government paper.

Firms in February agreed to sacrifice billions of dollars in earnings to participate in the National Debt Exchange (NDX), and not long after some were called to write off more revenues in another swap of Government of Jamaica securities for new bonds with lower coupon rates and longer tenures.

Corporate executivies took the stance that the move represented the greater good for the heavily indebted nation, as it was a prerequisite for the country to secure an agreement with the International Monetary Fund (IMF).

“Jamaica’s fiscal problems are very serious, and without strong action by the Government, supported by the IMF, we would be placing Jamaica in an untenable position,” said Scotiabank Jamaica and Bankers’ Association President Bruce Bowen during the announcement of the programme.

As expected, bottom lines took an immediate hit as firms posted losses on their assets and reduced interest earnings as a result of the NDX and subsequent ‘private debt exchange’. With the exception of Scotia Group Jamaica and Jamaica Money Market Brokers (JMMB), all listed financial institutions posted either a decline in year over year profits or losses for the first quarter.

Scotia last week reported that it suffered an immediate loss of $397 million on its financial assets as a result of the NDX. Moreover, the debt exchange caused capital loss of $1.35 billion throughout the Group, but it didn’t stop the company from posting higher net profit for the period, when net income totalled $2.9 billion, or eight per cent more than the same quarter last year.

Scotia is among the largest holders of government debt, along with National Commercial Bank (NCB), Sagicor Life Jamaica Group (SLJ) and JMMB.

NCB reported a 13 per cent decline in net profits to $1.7 billion for January to March, 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 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.

SLJ reported a 58 per cent decline in net profits. Sagicor Investments, in which SLJ has 85.45 per cent control, posted a 98 per cent decline in aftertax profits to $6.95 million, against the background of “one-time” capital losses of $428.04 million and reduced interest from the NDX programme.

JMMB reported last week that it realised a one-time loss of $754.2 million on securities exhanged in the debt swap. However, net profits of $700 million for the January to March period in 2013 were still up from the $450 million after tax profits over the comparative period last year.

Barita Investments’ bottom line took a huge hit from the NDX, resulting in the company posting $98 million in losses for the three months ended March 2013. The impact of Barita’s participation was behind write-offs of $240 million, the investment company said.

Mayberry Investment Limited posted a $68 million net loss for the period compared to $113.2 million net profit in the corresponding period last year. The company said that it racked up a $337 million loss on the NDX transaction.

But the financial institutions remain resilient going forward and have looked towards becoming more efficient and innovative to alleviate the impact from the fallout in government paper.

“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,” said NCB managing director Patrick Hylton last month, adding that “the deployment of new and improved technology will be a key enabler of this strategy”.

Hylton’s sentiments echo throughout the sector.

Scotiabank, for instance, said last week that it plans to deepen its relationship with clients and grow its customer base, while improving operating efficiencies and maintaining tight control of expenses. Barita meanwhile noted that it continues the diversification of its revenue streams, increasing its product offerings and growing non-interest income.