NCB Financial Group Limited (NCBFG) paused lending through recently introduced unsecured consumer products for about three months after delinquencies rose, then relaunched them with tighter credit models, Chief Executive Officer Robert Almeida said.

Almeida told the Jamaica Observer in an interview last Friday, following NCBFG’s quarterly investor briefing, that the affected loan book was growing again with a lower delinquency rate. He did not identify the products, disclose the size of the portfolio or provide delinquency rates before and after the changes.

“Consumer retail, and really unsecured consumer retail, is where we were seeing the spike in our current delinquency profile,” Almeida said.

“We took a pause for about a quarter while we tightened up those models, figured out where the weaknesses were, and then we relaunched. That loan book is now growing again, and it is growing with a lower delinquency rate.”

The intervention came during a wider contraction in NCBFG’s loan book. Gross loans and advances fell by $25.27 billion, or 3.9 per cent, to $615.57 billion at June 30 from $640.84 billion a year earlier, according to the group’s unaudited nine-month financial statements.

Almeida said the consumer-loan pause was one of several reasons for the decline. Scheduled repayments exceeded new lending during the period, while the group became more cautious following Hurricane Melissa. Management’s earlier concentration on improving basic service and attracting deposits also slowed lending, he said.

While loans declined, customer deposits rose by $67.72 billion, or 8.4 per cent, to $874.04 billion. Gross loans were equivalent to 70.4 per cent of deposits, according to a Business Observer calculation, down from 79.5 per cent a year earlier.

The movement left NCBFG with a larger pool of deposit funding relative to its loan book, but also increased the pressure on management to put that money to work without taking on excessive credit risk.

Almeida said the group was not deliberately reducing its credit exposure and wanted to reverse the decline in lending. NCB was becoming more active in motor-vehicle financing and would increase its focus on mortgages and larger corporate transactions, he said.

The delinquency spike in the newer consumer products was unrelated to the $10.67 billion in bad loans that NCBFG wrote off during the nine months to June, Almeida said. The write-offs were nearly three times the $3.75 billion recorded in the corresponding period last year.

Almeida said the write-offs covered older problem loans across the portfolio that had already been provided for.

“It included a bit of everything, because really we weren’t writing off as quickly as we should,” he said.

Removing the loans and corresponding provisions from the balance sheet therefore did not create a fresh charge against current profit. The write-offs, together with improved collections, recoveries and lower classified exposures, helped reduce non-performing loans by $4.7 billion, or 16 per cent, to $24.1 billion. The non-performing-loan ratio improved to 3.91 per cent from 4.49 per cent.

Group-wide credit impairment losses fell by 36 per cent to $4.37 billion. Almeida said current credit costs were increasingly concentrated in retail lending after several large corporate exposures produced more uneven charges in earlier periods. He said the experience with the newer consumer products had led NCBFG to tighten its underwriting.

The group’s June-quarter profit recovered from the March period, although much of the improvement came from unrealised gains on listed foreign equities rather than a comparable increase in recurring income.

Consolidated net profit rose by 57 per cent from the preceding quarter to $8.24 billion but was little changed from $8.25 billion in the corresponding period last year. Profit attributable to NCBFG shareholders increased by 30 per cent sequentially and 8.4 per cent year on year to $6.08 billion.

Gains on foreign-currency and investment activities totalled $5.74 billion, compared with a $2.01-billion loss in the March quarter — a swing of $7.75 billion.

Almeida said the foreign equities were listed and liquid, making the gains realisable, although their value remained exposed to market movements. He said averaging the March and June quarters produced what he regarded as recurring attributable profit of about $5 billion to $6 billion a quarter.

He expects that range to rise to between $6 billion and $7 billion “relatively quickly” as NCBFG works towards a return on equity of 15 to 20 per cent and a cost-to-income ratio below 60 per cent.

Those targets remain some distance away. NCBFG reported an annualised return on equity of 8.57 per cent and a nine-month cost-to-income ratio of 70.4 per cent. Its June-quarter cost-to-income ratio was approximately 66.7 per cent, based on a Business Observer calculation.

Sheree Martin, interim chief executive officer of National Commercial Bank Jamaica Limited, told the investor briefing that many processes at the bank remained manual, meaning efficiency improvements would be partly incremental. She said the bank was working to make its operations faster, simpler and more customer-centred, while increasing revenue to support its existing cost base.

For the nine months, net profit attributable to NCBFG shareholders fell by 30 per cent to $13.28 billion, largely because the prior-year period included a one-off gain from the sale of the group’s Netherlands insurance brokerage. NCBFG said attributable profit would have increased by 38 per cent after excluding that gain.

The group must now turn its growing deposit base into new loans while preserving the tighter credit standards introduced after the consumer-lending setback.

“The good news is, when you’re bringing in the deposits, you build up a stronger capacity to lend,” Almeida said. “Now we have to realise and utilise that capacity to grow the loan book.”