Profitability at Jamaica’s largest banking group, NCB Financial, continues to fall, as it navigates through the difficult times brought on by the novel coronavirus pandemic.

In spite of its falling profitability, NCB Financial Group has finally declared a dividend, the first time in over a year. The board of directors at its meeting last week, approved a dividend of $0.50 per ordinary stock unit.

The dividend is payable on May 31, 2021 for stockholders on record as at May 14, 2021. The last dividend payment received by shareholders was back in March last year when the board of directors declared an interim dividend of $1.00 per ordinary stock unit.

In its just released half-yearly performance ended March 31, 2021, NCB Financial Group reported net profit of $9.2 billion for the period, a decline of 31 per cent or $4.1 billion from the prior year. Consolidated net profit attributable to stockholders was down or $3.7 billion to $5.9 billion or a 38 per cent decrease from the prior year.

NCB’s performance reflects the impact of the reduced economic activity caused by the pandemic. However, the banking group “remains resolute in focusing on the successful execution of initiatives as we advance our aspiration of becoming a world-class Caribbean financial ecosystem. Our business model positions us to benefit from numerous opportunities, which have surfaced during the pandemic.”

Bolster services through ongoing investments in technology

In spite of the downturn in business, NCB Financial Group continues to bolster its services through ongoing investments in technology, enabling it to deliver enhanced digital solutions. This is being done whilst ensuring that the banking group emerges from the pandemic stronger and prepared for the post pandemic environment, which will be underpinned by recovery and growth.

There was commendable performance from the group’s banking, investment and insurance activities, despite the reduced profitability. Operating income of $59.8 billion represented an increase of nine per cent or $5.0 billion over the prior year.

The improved revenue was, however, offset by a $5.5 billion or 13 per cent increase in operating expenses. Banking and investment activities amounted to $46.6 billion, representing a 17 per cent or $6.6 billion increase when compared to the prior year’s results. This performance was primarily driven by improved gains from investment activities, which rebounded to $8.4 billion for the current six-month period. This was due to more favourable market conditions and improving securities prices.

Credit impairment provisions benefited from an improved economic outlook compared to the previous financial year and prudent delinquency management strategies that led to a $684 million or 21 per cent reduction in expected credit losses. The continued downward trend in loan rates has caused a tightening of interest spreads.

This led to a slight reduction in net interest income, in spite of the increases in loans, securities and funding balances. Reduced retail and corporate activity has significantly impacted NCB’s fee income, specifically card issuing and electronic sales, which is heavily dependent on travel, entertainment and restaurant activities.

The decision to waive fees at electronic channels also affected this revenue source.

Rising operating expenses

Operating expenses were up 13 per cent to total $47.1 billion, an increase of $5.5 billion. Staff costs of $23.4 billion, increased by $2.4 billion or 12 per cent over the prior year. The hike in staff costs was primarily due to the annual increases in salaries, wages and allowances coupled with incentive payments within the current period related to the prior financial year.

Other operating expenses increased by $2.1 billion due to the increased technology costs required to enhance our digital platforms coupled with additional marketing expenditure as the group sought to improve its customers’ experience and educate them on the use of its digital channels. These increased costs outpaced the growth in revenues, resulting in an increased cost to income ratio of 75.66 per cent, up from 71.79 per cent in the prior year.