• Michael Lee-Chin said he is not happy with the lack of dividend payments from NCB

• Lee-Chin vows to drive management to operate more efficiently when he returns as chairman next month so more money will be available to pay dividend to shareholders

• NCB’s 44,208 shareholders have received no dividend payment since May 2021

MICHAEL LEE-CHIN, the on-leave chairman of the NCB Financial Group, said shareholders who are growing increasingly frustrated about the lack of dividend payments from the bank will see changes when he returns to the helm in August after his three months garden leave that will not only restore the normally reliable quarterly flow of income but also see an increase in the size of the payout.

NCB Financial Group has not paid a dividend to its shareholders since May 2021 despite the Bank of Jamaica (BOJ) lifting its April 2020 mandate that deposit-taking institutions and financial holding companies suspend dividend payments at the height of the COVID-19 pandemic “to conserv(e) capital and further enhanc(e) licensees’ lending and loss absorption capacities” as the pandemic ravaged the global economy. The BOJ rescinded the suspension in April 2021. In that same month NCB Financial Group announced that it will pay a $0.50 per share dividend and paid it on May 31, 2021, sharing over $1.2 billion among its 44, 421 shareholders at the time. Since then the company has consistently announced each quarter that its board “did not recommend an interim dividend”. The situation has not found favour with the conglomerate’s largest shareholder and chairman, Michael Lee-Chin. He did not mince words about the situation in an interview Thursday with the Jamaica Observer.

“Firstly, I’m not happy. I am definitely not happy. And I am not just speaking for myself. I am speaking for all shareholders, including the pensioners. Certainly, we all depend on the income from dividends,” Lee-Chin told the Caribbean Business Report. NCB Financial Group’s board is to meet later this month and it is not clear if management will recommend a dividend to break the spell.

Prior to the BOJ-enforced suspension of dividends, Lee-Chin earned over US$30 million annually from dividend payments with the bank paying out $3.70 during the 2019 financial year. Quizzed about how the lack of dividends has affected him personally, Lee-Chin, in a refreshingly transparent response said, “I am not happy because I have had to be selling assets to meet my expenses.” The NCB chairman in recent years has been selling a number of assets, including real estate, his yacht, and some of his shares in NCB.

Despite the non-payment of dividend, the NCB Financial Group is stable, in good financial health, and remains the country’s leading financial institution. In 2022, the conglomerate reported $39.9 billion in net profit, its highest ever, outstripping its pre-pandemic return by more than $8 billion.

But Lee-Chin said he believes that performance can be improved if the entity looks seriously at its cost structure, improves governance, and focus on making its customers happy.

On the matter of cost, he illustrated his point using a comparison of NCB Financial Group’s cost to income ratio and that of its peers. The cost to income ratio is an efficiency ratio, which shows how much a company spends to generate a dollar of income. The more efficient a company is the less expenses it incurs to generate income. A higher ratio shows more cost is being incurred to generate a dollar of income.

“Our cost to income ratio in 2022 was 69 per cent,” Lee-Chin pointed out to the Caribbean Business Report. “When I bought the bank back in 2002, the aspiration was to make sure that NCB Financial Group operates at world standards. So if you look at today and take a well-run bank, say Scotiabank, [its] cost to income ratio is 56 per cent. So they are 13 percentage points more efficient than we are. Now to put that into perspective, if we brought down our expense ratio from 69 per cent down to the world-class standard of about 54 per cent, which Scotia is close to, it means we would have $22.5 billion more in additional profits on top of the $40 billion we reported [in 2022],” he continued.

Lee-Chin, however, said that while $22.5 billion would not be due only to NCB Financial Group shareholders because some would have to be subtracted for minority interests in Guardian Holdings and Clarien, it would still mean a lot more money would be available to be paid out as dividend. That $22.5 billion is more than 50 per cent greater than the almost $40 billion the NCB Financial Group posted as profits last year.

“The point is there would be $22.5 billion more, minus minority interest in Guardian and Clarien, that could be at the extreme, dividendable. That $22.5 billion works out at an additional $9 per share [per year] incremental to what we have been making. And that incremental profit reduced by minority shareholders portion of course could be dividendable and added to the $3.70 we were paying before the pandemic. So the potential of this organisation is massive if we became a lot more efficient, which is to bring down our expenses. So that is going to be a focus of the organisation to make sure we get to global standards with respect to our efficiency.”

“So you see why I am not happy. It’s because we could do a much better job at reducing expenses. We could do a much better job at making sure that we improve the governance of the organisation, starting with the board doing a much better job with respect to oversight of management and certainly we can do a much better job at delivering good service to customers.”

Lee-Chin said he has not been in contact with the managers since he has been on leave, but has taken an analytical eye to examining the bank and its operations and is now sending a signal of what the priorities will be when he returns to the board in August.

“I will be the first person to stick my hand up and say, ‘Yes, I could have done better over the last 20 years and I will do better over the next 20 years,’ ” he said, adding that he is making a promise to shareholders. “We can bolster governance to make sure management delivers what it says it will deliver, and I also keep hearing about that the customer service could be improved.”

He said those things the bank can control, unlike changes to the global accounting standards which would have taken effect recently, such as IFRS 17, which affects how profits are reported by the insurance arm of the financial conglomerate, or how BASEL III requirements impact the bank and also how rising interest rates to control inflation is impacting its operation.

“We don’t control those, but we have to ensure that the bank is strong to deal with them by building buffers.”

Guardian growth

Turning to Guardian Holdings, the Trinidad-based insurer of which NCB owns 62 per cent, Lee-Chin said he is setting his sights on growing that business with Europe in the cross hairs.

“Guardian Holdings is in 22 countries in the Caribbean, including the Dutch Caribbean, and through the Dutch Caribbean we can do business with Holland instantly, which we do. So we have a lovely business in Holland, whereby we own insurance agencies and that business is doing phenomenally well. Guardian in the the Dutch Caribbean is called Fatum and that gives us access to bring business in Holland and Holland is a beachfront to do business in Europe. So we have the expansion potential right into Europe, which we are already taking advantage of, and that business is very, very profitable. NCBFG is now more than just the bank, we have the insurance company and that gives us the potential to expand into Europe.”

Asset Tax

Lee-Chin also took on the asset tax which was imposed by the Government as a temporary measure as an ad valorem asset tax on the “taxable value” of the assets of deposit-taking institutions regulated by the Bank of Jamaica as well as securities dealers, life assurance companies, and property and casualty insurance companies regulated by the Financial Services Commission to raise funds when Jamaica turned to the International Monetary Fund in 2012.

“The asset tax was supposed to be temporary and that has morphed into being a little less than temporary, and I hope it doesn’t become permanent,” Lee-Chin said. “Philosophically, it is a counterproductive tax because it is increasing costs to the bank and is eventually being paid by the customers. As a percentage of our profit it is significant, and it affects profits and so it affects dividends,” he continued.