COME the end of this month, it will be two years since NCB Financial Group Limited (NCBFG) last paid a dividend to its shareholders whose reliance on the financial conglomerate’s previously consistent payments has drastically impacted their own well-being.

Prior to the COVID-19 pandemic in March 2020, NCBFG consistently paid quarterly dividends to its shareholders with its subsidiary National Commercial Bank Jamaica Limited (NCBJ) maintaining that payment frequency going back for over a decade. Even during the 2008/2009 global financial crisis, rather than foregoing dividend payments, NCBJ reduced the payment from $0.40 per share in December 2008 to $0.10 per share in August 2009. That reduced payment meant it still returned $2.17 billion in its 2009 financial year (FY) to shareholders compared to the $2.81 billion returned in the 2008 financial year.

However, this consistency has changed and in turn resulted in the Jamaican conglomerate accumulating capital on its books.

First, NCBFG was constrained by the Bank of Jamaica’s dividend restriction between April 2020 – April 2021 which limited its payments to shareholders. Even with this restriction no longer in force, NCBFG has maintained its dividend hiatus at a time when other companies have restarted dividend payments even at a lower nominal amount.

NCBFG is the largest company on the Jamaica Stock Exchange (JSE) by assets, with an asset base of $2.08 trillion from which it generated $149.60 billion in net operating income and $39.92 billion in consolidated net profit in 2022. Net profit attributable to shareholders of $27.32 billion makes it the most profitable conglomerate on the JSE.

While this consolidated performance shows all the companies in the NCBFG, the cash flows to the ultimate NCBFG holding company has changed in recent times. An example can be with the 2019 financial year when the standalone NCBFG had $15.48 billion in income with $9.72 billion stemming from dividend income related to its subsidiaries. Even after recording a $7.14 billion net profit, NCBFG paid $8.37 billion in dividend payments to its shareholders.

In the 2022 financial year, NCBFG had income of $2.19 billion with $1.23 billion in dividend income from subsidiaries. This reduction in dividend income saw NCBFG recording a $6.07 billion net loss. Upon checking its wholly owned subsidiary NCBFG’s 2022 audited financials, it revealed that NCBJ only paid $1.18 billion in dividends relative to the $14.97 billion paid in 2021. NCBJ in turn only received $4.17 billion from its own subsidiaries, a 79 per cent drop from the $19.95 billion paid in 2021. The key subsidiaries under NCBJ include NCB Capital Markets Limited (NCBCM) and NCB Insurance Agency and Fund Managers Limited.

“Those adjustments in capital in addition to regulatory changes that are anticipated by Basel III and IFRS 17 on capital requirements are still uncertainties. The board has considered it prudent to not pay dividends until we get a grasp as to what the capital requirements are with those uncertainties. The implications of BASEL III for the local financial sector is in fact significant,” said NCBFG Deputy Chief Executive Officer Dennis Cohen at the February annual general meeting.

The absence of dividend payments has also been marked by a significant decline in NCBFG’s share price which has fallen from $208.79 in 2019 to $71.97 yesterday, a two-thirds drop over nearly three years. Apart from the lack of cash flow related to dividends, shareholders who would have used NCBFG shares in loans would be under greater pressure to maintain the loan agreement as the collateral value falls.

Jamaican-Canadian billionaire Michael Lee-Chin, NCBFG’s ultimate majority owner, has been selling various assets over the last two years at a time when he is receiving no dividend income. According to the Trinidadian Guardian, Lee-Chin’s latest asset to go on sale is his two-storey mansion dubbed ‘Coconut Walk Private Estate’, which has an asking price of US$35 million, nearly three times the US$12.5 million he paid to acquire it five years ago. Other assets that would have been offloaded from the Portland Holdings Inc portfolio include CVM Television Limited; Reggae Beach, St Mary and Medical Associates Hospital.

His super yacht Ahpo has also been listed for sale at US$355 million which is a US$55-million premium to what he paid for the vessel delivered in December 2021. Ahpo is registered to Bellissimo Marine Limited and managed by Moran Yacht Management Inc. The super yacht has a crew of 36 and is listed on YachtCharterFleet at €2,750,000 per week as the winter seasonal charter rates. The vessel was last positioned in the Caribbean Sea with a voyage from The Bahamas to Gibraltar by May 19.

Lee-Chin would have collected $4.35 billion in dividends through AIC (Barbados) Limited in the 2019 financial year and more than $14.42 billion in the prior five years. Lee-Chin’s Portland and AIC entities have borrowed over the years against the NCBFG shares in multimillion US dollar loans. An available term sheet from August 2021 showed Portland (Barbados) Limited seeking to borrow US$5 million in fixed rate secured notes with tranche A and B maturing in three and five years, respectively.

The option to extend the tenure of various borrowings is one option for the billionaire until NCBFG restarts dividend payments.

Sagicor Select Funds Limited – Financial is feeling the impact of NCBFG’s share price decline and lack of dividends as noted in its 2022 annual report. Select Financial would have received a $1 dividend in March 2020 and a $0.50 dividend in May 2021 from NCBFG. Otherwise, its largest holding has declined in value from $1.68 billion to $695.76 million. NCBFG made up one-fifth of Select Financial’s $3.57-billion portfolio.

“SSF investors saw this bump in the dividend payment received during the year, which was funnelled into one payment at the end of the year — a departure from the two payments in the previous year,” said the chairman statement by Colin Steele.

NCBFG’s second quarter results should be published by May 15 on the JSE. Its subsidiary NCBJ has been bolstering its tier one capital base ahead of the Basel III implementation later this year with the commercial bank moving $8.1 billion of its retained earnings into the retained earnings reserve.

NCBFG’s subsidiaries are well capitalised and in compliance with regulatory requirements. NCBJ’s capital adequacy ratio was 13.43 per cent in June 2022 according to a Caricris (Caribbean Information and Credit Rating Services Limited) report for NCBFG. NCBCM’s capital adequacy ratio was 22.97 per cent in June 2022, which was twice the minimum regulatory requirement of 10.0 per cent and above the 14.0 per cent minimum requirement for systemically important financial institutions.