With talks of a potential recession looming amid rising interest rates and heightened global uncertainty, the principals of NCB Financial Group Limited (NCBFG) believe that the Caribbean financial conglomerate is sufficiently prepared to withstand any downturn in the various 21 markets they operate in.

The questions surrounding NCBFG’s financial resilience came at the company’s investor briefing last Friday on its third-quarter performance. While other local and regional financial conglomerates continue to pay dividends, NCBFG’s board decided at its board meeting on August 4 to not declare a dividend. This would make it the first time, since chairman and principal owner of NCBFG Michael Lee Chin acquired National Commercial Bank Jamaica Limited (NCBJ) in March 2002, that a dividend has not been paid in an entire financial year. NCBFG last paid a dividend in May 2021 totalling $1.23 billion. Its subsidiary Guardian Holdings Limited (GHL) declared a TT$0.20 dividend to be paid on August 29 to shareholders on record as of August 12. This payment totals TT$46.40 million ($1.06 billion).

“I think we all accept that these are unusual times. We keep talking about the idea of the pandemic, the crises that face us and at the end of it all, our most important role is to ensure the viability, sustainability and strength of the organisation. Our primary role is the protection of our depositors and our policyholders and secure their deposits in the context of the banks. What’s happening here is that, given the uncertainty looking ahead, we continue to see it prudent to focus on maintaining capital levels. At the end of it all, I see capital almost as insurance protection for policyholders. Certainly, as the CFO, it is almost the primary basic role that I actually play here,” said Group Chief Financial Officer and Deputy Chief Executive Officer Dennis Cohen on the matter of dividend payments.

Cohen also spoke against the possibility of a share buyback to support NCBFG, whose stock price is down 21 per cent on the Jamaica Stock Exchange (JSE) to $98.19 and 34 per cent on the Trinidad and Tobago Stock Exchange (TTSE) to TT$5.29. This comes against the backdrop of NCBFG reporting a 13 per cent improvement in net operating revenue to $36.28 billion and 104 per cent rise in net profit attributable to shareholders of $8.21 billion.

“Whilst the interest earning portfolios have grown, current market conditions continue to decline causing a reduction in sales of debt securities and losses in equities during the current period,” Cohen said in relation to the 58 per cent decline in gains on foreign currency and investment activities. NCBFG’s equity attributable to shareholders shrunk six per cent to $146.64 billion largely as a result of the $29.95 billion fair value losses on its bond portfolio which is measured under fair value through other comprehensive income.

NCBFG’s total assets are up seven per cent to $2.02 trillion which largely comprises of a $558.74 billion in net loans and advances and $724.84 billion in investment securities. Total liabilities increased eight per cent to $1.83 trillion with deposits totalling $712.21 billion and $443.93 million in liabilities under annuity and insurance contracts.

“Pricing is a function of market conditions. NCB by itself can’t go forward and move interest rates in a market where our competitors are doing something different. We have to stay within the market and price within the context of the market. Price movements that are reflected are a reflection of what’s happening in the market which oftentimes is driven by what’s happening at the central bank, in terms of their monetary policy adjustments. This is not an attempt to pass on unnecessary or unwarranted risks to customers. It is simply normal business practice,” Cohen added following NCBJ’s decision to hike interest rates on personal and small and medium enterprise customers by an average 1.14 per centage points in July. NCBJ’s non-performing loan ratio rose from 2.82 per cent to 4.19 per cent with $3.66 billion in loans written off.

GHL’s CEO Ravi Tewari noted that its property and casualty (P&C) business would experience a greater impact compared to the life, health and pension (LHP) business, which has products geared towards wealth protection which have greater margins. P&C makes up 25 per cent of GHL’s profits while LHP and asset management make up the remainder. Tewari also explained how there’s a race to the bottom by different players in the P&C market based on pricing which would be impacted by an economic downturn.

“On the asset side, because the LHP business holds a tremendous amount of assets as reserves against liabilities, there is exposure to a drop in asset values due to an economic downturn. However, it must be noted that an insurance company operates both on the asset side of its balance sheet and the liabilities side. Through our actuaries, we have developed a lot of technology to match those and our liabilities so that downward shifts in asset values to a significant degree are dampened by a commensurate downward shift in liability values. So, all in all, we have a fair amount of resilience to any economic downturn,” Tewari added.

NCBJ CEO Septimus Blake also believes that the bank’s capital base will be sufficient to withstand any shocks, especially as central banks continue to hike interest rates and the Russia-Ukraine war’s impacts continue to be felt globally. While he noted that lending might be a credit contraction in an economic downturn, wealth management and the treasury segments would benefit in those times.

“Accelerating our digital capabilities enables growth which allows us to confront a market environment which is less than stable, decrease costs and allow us to progress as a data-and-insights-driven organisation. Technology allows us to do more with less, and it is felt that investment in technology is actually a deflationary course in an inflationary economy and environment,” Blake added, on the value of technology to reduce costs. NCBFG noted in its release that it will be focusing heavy on executing its digital roadmap for the remainder of the financial year.

NCBFG President and CEO Patrick Hylton noted that there would be planned events later in the year to recognise the group’s 185th anniversary. He also encouraged all stakeholders to control what’s in their remit and leverage their strengths during any period. Hylton has been leading the NCB Group since his appointment in December 2004 and was the former head of the financial sector adjustment company (FINSAC) during Jamaica’s financial meltdown.

“While some people have a problem for every solution, we know there’s a solution for every problem and we also know that there’s the seed of greater opportunity within every challenge. We have experienced business growth in recessions, we have withstood many crises, including the 2008 global financial crisis. Following the 2010 Jamaica Debt Exchange, our bank became the leading financial institution in Jamaica based on profitability, notwithstanding significant loss in income as a result of the restructuring of Government of Jamaica debt. We continue to innovate and transform. We will not be like Blockbuster and Kodak. We are committed to embracing external trends to disrupting ourselves rather than being disrupted,” Hylton closed.