THE National Commercial Bank (NCB) has signalled that a focus on its loans portfolio will guide its strategy for shoring up income lost from the financial fallout and the reduction in its interest income earnings from Government of Jamaica (GOJ) securities.

At the annual general meeting held yesterday at the Hilton Kingston Hotel, where Group Managing Director Patrick Hylton outlined the annual performance highlights, he said that NCB would naturally shift the way it operates following the effective conclusion of the Jamaica Debt Exchange (JDX).

The JDX, which saw the holders of high-yielding Government of Jamaica bonds return those for bonds with lower yields and longer maturities, got the full participation of the financial sector, including NCB. Hylton disclosed that NCB’s total portfolio of government bonds amounted to J$160 billion, half of which was denominated in Jamaican dollars and held by all three entities of the group –NCB, NCB Capital Markets (NCBCM) and NCB Insurance Company (NCBIC).

“The other half which is in US dollars will not be impacted significantly,” Hylton told shareholders who expressed concern about the Bank’s exposure. He, however, would not disclose the expected reduction in net interest income that the group would face as a result of the exchange.

Instead, he indicated one aspect by which the group would continue to retain significant earnings. “There will admittedly be some immediate loss in revenue as a result of the reduced yield on government securities. However, we have taken several steps to mitigate the impact. In any event, as we all recognise, banks typically do well in a low-interest rate environment as credit is more affordable to borrowers. We therefore anticipate an increase in the take-up of our loans portfolio some of which may not have been accessible to some customers prior to the pending reduced interest rates environment,” Hylton said.

To confirm the performance of its loans portfolio, Hylton reported that the bank’s eight per cent asset growth to $315 billion was shared between investment assets, which grew from $167 to $176 billion, and loans which grew from $82 to $88 billion. Loans and advances totalled $88.2 billion at the financial year-end September 30, 2009, growing by $6 billion over the 2008 balance. Based on the latest Bank of Jamaica Commercial Bank Industry review, NCB had the largest market share of net loans, recording growth of 25 per cent, above the 20 per cent industry average.

“Our loan portfolio at 34.6 per cent give us a rank of number one in the industry,” Hylton said. Additionally, NCB’s special loan facility, at nine per cent for persons in the productive sector, is currently the lowest among all commercial banks.

However, in keeping with the focus on loans, the bank has had to increase its provision for credit losses by 54 per cent in 2009, up from $468 million in 2008. The increase in the provision, Hylton noted, would have been as a result of the challenges its customers would have been experiencing given the economic condition.

For the year ended 2009, the group recorded net profit of $10.2 billion, an 18 per cent or $1.5 billion increase over 2008. Operating revenue also grew by 10 per cent to $27 billion, along with earnings per stock, which increased 18 per cent to $4.16. But even while profits grew, costs declined, with the group posting a 2.4 per cent reduction in its cost to income ratio year on year.

Subsidiaries also performed well, with NCB Capital Markets (NCBCM) recording a net profit of $1.7 billion in 2009, an increase of $939 million or 121 per cent over 2008. Its operating income also increased by $303 million to $3 billion. However, the reported profit should be interpreted in the context of the one-off significant write-down the securities dealer experiences as a result of its exposure to the Lehman Brothers meltdown in 2008.

NCB Insurance posted an improvement in net profit of $1.7 billion a $981 billion or 138 per cent increase over 2008, while insurance premium income declined two per cent to $389 million, and policyholders’ liability increased to $19.1 billion or 16 per cent over 2008.

“The results in NCBIC reflect record results and is largely underscored by our process of restructuring which took place fairly early in 2008, resulting in an increased focus on the bank assurance business and the pensions and investment management services,” Hylton disclosed. He said that NCB remains the largest commercial bank when measured by profit, assets and branch network. “We believe these advantages provide significant opportunities for continued growth,” Hylton said. The continued growth is also reflected in the group’s first-quarter net profit of $2.7 billion up from $2.3 billion in 2008.

“The results I just shared with you indicate clearly that NCB Jamaica weathered well the choppy economic conditions that characterised the external environment during the financial year 2008-2009,” Hylton told shareholders.