Fitch now gives NCB positive outlook
US-BASED rating agency Fitch upgraded the outlook for National Commercial Bank Jamaica (NCBJ) from stable to positive.
The rating agency, however, affirmed a ‘B’ rating of the island’s most profitable bank indicating that it remains constrained by country risk. “Fitch views NCBJ’s capital levels as adequate, given the bank’s exposure to the Jamaican Government,” stated Fitch in its March rating on the bank.
Fitch affirmed NCBJ with an issuer default rating (IDR) at ‘B’ and ‘B-‘ for short- and long-term notes, respectively, but revised its outlook to positive based on its solid performance.
“Solid earnings and a policy limiting dividend distributions have strengthened the bank’s capitalisation levels which compare favourably to international peers,” stated Fitch.
The bank’s asset quality weighs heavily on the bank’s ratings due to NCBJ’s significant exposure to the Jamaican Government, stated Fitch. At September 2014, NCBJ’s holdings of Jamaican government securities (including government guaranteed bonds) represented 48 per cent of total assets, or 2.9 times its shareholder equity.
“Fitch views this exposure as a significant source of credit risk given the sovereign’s speculative grade rating,” stated Fitch.
In addition, the bank’s loan portfolio exhibits material levels of concentration “as is typical of a smaller economy”, which has contributed to volatility in the bank’s loan quality indicators.
“In terms of the bank’s funding, the bank relies primarily on customer deposits, but also makes use of its significant government securities holdings in the repo market,” stated Fitch, adding that repos represented 30.8 per cent of total liabilities at December, 2014.
NCB’s December 2014 first-quarter profits dipped 15 per cent year-on-year to $2.1 billion due mainly to a new requirement which forced it to lump its asset tax as a one-time payment. The bank could no longer accrue the asset tax due, adopting new International Financial Reporting Standards (IFRS) 21. The asset tax absorption affected key performance indicators of the bank, including its return on average equity (net profit over equity) down to 10.4 per cent from 15.3 per cent.
