Apr 2017 Financial News

Funds under management by security dealers now over $1 trillion (Jamaica)

Apr 19, 2017

AS local security dealers reduced retail repurchase agreement (repo) offerings and increased collective investment scheme offerings, funds under management increased, but profitability declined in the year ended.

As outlined in Bank of Jamaica Financial Stability Report 2016, local security dealers (SD) showed only marginal improvement in profitability. But funds under management (FUM) increased to just over $1 trillion, or up 14 per cent, relative to $855.3 billion in 2015.

The central bank also notes that 60 per cent of SD holdings are in US dollars, representing dollarisation higher than the financial sector average and raising their risk profile somewhat.

There were 42 licensed securities dealers. This number included 32 securities firms (considered core securities dealers) and 10 non-securities firms. For the calendar year to September 2016, the securities dealers reflected return on assets (ROA) of 1.6 per cent and return on equity (ROE) of 11.4 per cent, compared to a ROA and ROE of 1.5 per cent and 11.3 per cent, respectively, for the calendar year to September 2015.

The dealers are operating in a new environment in which the regulatory authorities are doing much to discourage growth in the retail repo portfolios and encouraging replacement with other less risky products such as collective investment schemes issues.

A repo is a form of short-term borrowing for dealers in government securities. The dealer sells the government securities to investors and buys them back later. Under a new regime implemented under influence from the International Monetary Fund, repos now have an investment floor of $1 million for retail clients.

Repurchase agreement transactions have been declining as a percentage of FUM.

Collective investment schemes (CIS) reflected the most significant growth for the review period, increasing by 25.5 per cent.

Dealers’ asset base was $577.1 billion as at the end of September 2016, relative to $531.2 billion for the end of 2015.

The BOJ notes that SDs’ off-balance-sheet assets continued to be twice that of the on-balance-sheet items, with the expansion of product offerings to include CIS.

For the sector, regulatory capital increased by 12.2 per cent to $71.1 billion, but required ratios remained over the prudential benchmarks.

Of note, the central bank said, was an increase in the sectors exposure to foreign exchange risk at the end of September 2016 compared to end of 2015. The sector’s foreign currency net open position to capital ratio increased to 23.6 per cent at the end of September 2016, relative to 19.1 per cent at the close of 2015.

This increased foreign exchange exposure is consistent with trend increase in dollarisation in the sector since the end of 2015, the BOJ said. As at September 2016, foreign currency investment holdings to total investment were 60.6 per cent.

The central bank said that total liabilities as a share of total assets, which is one measure of leverage, declined by 15 per cent.

Source:
BY AVIA COLLINDER
collindera@jamaicaobserver.com
Business reporter
Jamaica Observer
Wednesday April 19, 2017    

http://www.jamaicaobserver.com/business/Funds-under-management-by-security-dealers-now-over--1-trillion_96006