Banks’ write-offs spiked in 2021
WHILE non-performing loans (NPLs) to gross loans for deposit-taking institutions (DTIs) remained under three per cent in 2021, the value of debt written off by commercial banks hit historic highs as borrowers folded under the novel coronavirus pandemic.
When the first case of the COVID-19 disease was confirmed in Jamaica in March 2020, DTIs extended moratoriums to customers who were either unable to earn or came under severe stress from the decline of economic activity. This prevented many loans from going into past due or non-performing status which would have significantly impacted the quality of the DTIs balance sheets and regulatory requirements.
The Bank of Jamaica (BOJ) suspended its special regulatory treatment of COVID-19-related payment accommodations on May 3, 2021, but various DTIs had a gradual phase-out of deferral arrangements and restructured credit portfolios. At the end of November 2021, the total loans under moratorium was $15.4 billion among five licensees, compared to the prior year when it was $70.2 billion among nine licensees. 58.9 per cent of all the moratoriums were domestic currency facilities with corporate clients and individuals being the main beneficiaries of moratoriums. $176.1 billion in loans benefited from moratoriums extended by banks since the pandemic began.
In the case of National Commercial Bank Jamaica Limited (NCBJ), the country’s largest commercial bank by assets, it wrote off $3.66 billion in loans during its 2021 financial year (FY) ending September 30. This was above the $3.61 billion written off during the national debt exchange (NDX) in 2013, which was a significant rise above the $580.81 million in its 2012 FY. Although it recovered $1.02 billion based on its credit loss provisioning, its NPLs spiked by 72 per cent to $16.46 billion. This resulted in its NPL-to-gross loans ratio moving from 2.82 to 4.19 per cent. Its loan book grew by 16 per cent to $392.49 billion which was supported by a deposit base 13 per cent higher at $460.87 billion.
The Bank of Nova Scotia Jamaica Limited (BNSJ), which had $193.26 billion in gross loans, wrote off $5.30 billion in its 2021 FY. This surpassed the $3.29 billion written off in 2017 for Scotia Group Jamaica Limited. Its NPL to gross loans ratio rose from 2.01 to 2.76 per cent in 2021. The recoveries during the year totalled $828.98 million compared to the $625.17 million in 2020. The gross loans decreased by five per cent to $193.26 billion while its deposit base grew 13 per cent to $370.61 billion.
“The group writes off an impaired financial asset (and the related impairment allowance), either partially or in full, when there is no realistic prospect of recovery. Where financial assets are secured, a write-off is generally after receipt of any proceeds from the realisation of security. Credit card receivables 90 days past due are written-off. In subsequent periods, any recoveries of amounts previously written off are credited to expected credit losses in the consolidated statement of revenue and expenses,” BNSJ’s audited notes explained surrounding write-offs.
Even FirstCaribbean International Bank (Jamaica) Limited saw its write-offs hit $275.34 million in 2021 which was higher than the $135.24 million in 2018. NPLs rose to $1.33 billion with the NPL-to-gross loan ratio increasing from 1.17 per cent to 1.64 per cent. Gross loans grew by seven per cent to $81.43 billion with deposits rising by 21 per cent to $127.05 billion.
At the end of 2021, NPL’s had grown to $33 billion, which was above the $29.4 billion recorded in 2013 when the country had the NDX. However, the percentage of NPLs to gross loans was 2.9 per cent in 2021, the highest since 2016, compared to 5.4 per cent in 2013. The ratio was even higher at seven per cent in 2012. The reason for the low NPL-to-gross loans ratio is due to the loans balance rising faster than the rise in NPLs. The largest areas of delinquency related to overseas residents for $1.8 billion, $1.3 billion by corporates and $600 million by individuals. The past due balance between one to three months was also declining with $9 billion at the end of November. Loans at the end of November 2021 totalled $1 trillion which was funded by $1.42 trillion in deposits.
“The overall slowdown in gross loans reflected a reduction in credit supply by some lenders as a precautionary measure against the potential impact of the heightened credit risk environment on DTIs’ balance sheets. The BOJ’s 2021 annual report stated that loan growth slowed in 2021,” the BOJ’s 2021 annual report stated.