NATIONAL Commercial Bank Jamaica Limited (NCBJ) has announced that it will be increasing the interest rates on its existing variable rate loans for its personal and small and medium enterprise (SME) customers by an average of 1.14 per cent on July 19.

The country’s largest bank, with an asset base of $756.54 billion as of September 2021, had announced last month that it would be increasing the rates on its existing client base shortly. It had already started to increase the costs on new products from March. The increase is being attributed to the Bank of Jamaica’s (BOJ) policy rate moving tenfold from 0.50 per cent to five per cent in nine months. NCBJ had a gross loan portfolio of $392.49 billion in September with an effective average interest rate of 11.12 per cent on Jamaican-dollar loans, and advances with the group at 11.13 per cent.

“Obviously, if we see, depending on the rate of increases in interest rates, it may dampen demand for loans. New mortgages could be impacted in terms of higher rates and also the potential for existing mortgages repricing at current rates could put pressure on debt service abilities. We believe it could be a net benefit to the organisation,” said chief executive officer of NCBJ Septimus Blake at the NCB Financial Group Limited’s (NCBFG) investor briefing last month. NCBJ is a wholly owned subsidiary of NCBFG.

The consumer and SME banking segment of NCBJ is typically the least profitable segment for the bank despite bringing in the most revenue. The segment brought in $17.98 billion in revenue for NCBFG’s first six months, but only had an operating profit of $635.58 million. This is the first time in nearly three years the segment has been profitable, with the prior period having an operating loss of $1.04 billion. This is in contrast to NCBFG’s corporate and commercial banking segment (CC) which brought in 20 per cent more revenue, amounting to $7.10 billion, and produced an operating profit of $3.05 billion. NCBFG’s consumer and SME banking segment includes Clarien Group Limited’s results while the corporate and commercial banking segment is solely attributable to NCBJ.

“We as a bank are constantly refining our understanding of the implications at the macro level and how that transmits to our balance sheet and income statement. We’re constantly forecasting key balance sheet and income statement items such as revenues, expenses, loan losses and the associated provisions on profitability. NPLs have shown some signs of stabilising,” Blake added.

NCBJ’s 2021 audited financials revealed that a 100 basis point (1.00 per cent) increase on the floating rate of non-trading financial assets and liabilities would improve the bank’s bottom line by $55.70 million, but would decrease the other comprehensive income line by $6.60 billion. The financials also noted that $178.28 billion in loans and advances were exposed to interest rate risk beyond five years.

NCB wrote off $3.66 billion in loans last year and saw its non-performing loans spike to $16.46 billion. This pushed its non-performing loan-to-gross loans ratio to 4.19 per cent at the end of the financial year.

Several other financial institutions have announced interest rate increases for customers but NCBJ is the only bank to announce interest rate increases isolated to a particular segment, and not on all its existing variable rate loans. JN Bank’s rate hike takes effect tomorrow while Sagicor Bank Jamaica’s (SBJ) rate hike takes effect on June 27. First Global Bank and the VM Building Society’s (VMBS) rate hikes take effect next month. VMBS and SBJ’s rate hikes are the highest so far with a maximum increase of up to 1.50 per cent. JMMB Bank (Jamaica), First Caribbean International Bank (Jamaica) and the Bank of Nova Scotia (Jamaica) have not announced any rate hikes to date.

The Statistical Institute of Jamaica will be releasing inflation numbers on the 15th which will set the tone for the BOJ’s monetary policy committee meeting ahead of a rate decision on June 29. The US Federal Reserve meets on June 14-15 to discuss its next move to tame inflation in that country, with the numbers set to be released on June 10.

Domestic currency loan rates by commercial banks are currently at historic lows, according to BOJ data. Mortgage credit is at an all-time low of 6.96 per cent as of March 2022. Personal credit is at 20.86 per cent, commercial credit at 9.50 per cent, and instalment credit at 10.55 per cent. Loans to the local government and other public bodies had an average rate of 6.09 per cent while central government had an interest rate of 9.72 per cent. The average interest rate across the commercial banking sector was 11.53 per cent.