THE directive to commence the divestment of the Jamaica Mortgage Bank (JMB) is now awaiting Cabinet review, according to Milverton Reynolds, managing director of the Development Bank of Jamaica (DBJ).
The Jamaica Mortgage Bank, established in 1971, has the mandate to finance affordable housing. The company seeks to mobilise financial resources for on-lending. The JMB is the third company and government agency listed for privatisation by the Government of Jamaica. Other companies divested in the last three years include Wigton Windfarm Limited and TransJamaican highway limited – transactions which netted the State billions from sale of shares to the public.
Forty-eight state bodies are slated for accelerated rationalisation. In the Government's latest public bodies report, it is noted, “Work is ongoing to effect the completion of rationalisation efforts, [with] actions to be finalised in 2021/22 including the listing of shares in relation to the operations of the Jamaica Mortgage Bank.”
Reynolds told the Jamaica Observer that following the completion of due diligence assessments including valuation and legal opinions with consultants DBJ, on behalf of the JMB Enterprise Team, recommendations have been submitted to the Ministry of Housing, Urban Renewal, Environment and Climate Change “to seek Cabinet's approval of the recommended transaction structure for the privatisation”.
The development bank head outlined, “Once Cabinet approval of the recommended transaction structure is received the Development Bank of Jamaica and the JMB Enterprise Team will implement the approved strategy, including completion of the preparation of the prospectus in preparation for the application for listing on the Jamaica Stock Exchange.”
JMB has remained profitable for the last six years, despite some revenue fluctuations. The 2020 to 2021 fiscals have not been tabled but for fiscal year 2019/2020 lower lending rates resulted in a decline in year-over-year revenues by 16.3 per cent or $72.3 milion, moving from $443.9 million to $371.6 million for the financial year 2019/2020.
Interest expenses from borrowing decreased by 59.7 per cent, given the lower 180 day T-Bill. Management indicates that its ability to reduce total expenses, excluding expected credit loss provisions, by 13.9 per cent or $28.7 million, resulted in a 30.6 per cent increase in JMB's year-over-year profit before taxes to $321.1 million, up from 255 million. Profit after tax grew by $91.1 million or 42.5 per cent year over year while net loans increased by 14.1 per cent. Shareholders' equity grew by 16.1 per cent. There was a 59.7 per cent reduction in finance costs and a write-back of $139.8 million in ECL provisioning in the 2019/2020 period.
Management commented in its 2020 annual report, “ The performance marks the sixth-consecutive year of increased pre-tax profits and a change in the fortunes and future prospects of the bank.” The bank is currently continuing a four-year growth strategy to 2022, it also aggressively collected and recovered over $395.8 million of its legacy bad debts during the financial year. However, management noted in the annual report that JMB continues to face the challenge of an increasingly competitive space as financial institutions look to diversify their loan books.
The mortgage bank's strategies under the plan include, as outlined, “creating a niche market by becoming the lender of choice for the small and medium-size developers segment; diversifying its income stream by introducing new and innovative products and services to the construction and mortgage sectors”. The third plank of the plan is a doubling of the earnings portfolio to $5 billion by 2022 to hedge against expected declines in the loans and investments yields attributable to reduced interest rates; and finally employing its proprietary risk management system to manage risks associated with projects undertaken by small and medium-size developers. The company is also continuing its focus on reducing bad loans, some $300 million of which was collected in the last financial year.
For the 2019/2020 year the bank borrowed $2.1 billion from the private capital market and paid out $1.9 million of debt obligations, primarily through a revolving facility with National Commercial Bank. The bank committed $2.1 billion during the year to start 128 solutions primarily for its targeted small and medium-size developers. The average loan size was $297 million, to construct an average of 19 housing solutions. At the end of the 2019/2020 year JMB had a total of 17 projects at various stages of completion, with cumulative commitments amounting to $6.2 billion to construct an aggregate 499 housing solutions or an average of $365 million to construct an average of 29 solutions altogether.
The bank also disbursed approximately $1.2 billion to fund new commitments as well as finance the completion of approximately 60 solutions carried over from previous periods. Management noted that although the growth in housing development may be viewed as rapid, the output remains substantially below the 15,000 units required each year. Additionally, they noted, growth in the average value of mortgages invites a conversation about increased property values and higher percentage mortgages (loan to value).
“Based on these indicators, Jamaica Mortgage Bank, being an interim financier and the administrator of the Mortgage Indemnity Insurance product, is well-positioned to maintain its relevance and importance in the housing market,” it was stated in the report.