Jun 2009 Financial News
FirstCaribbean (Jamaica) leads competitors in loans to the productive sector
Jun 12, 2009
FirstCaribbean International Bank Jamaica (FCIB) provides the highest percentage of its loans to the productive sector compared to any of its commercial banking competitors, said the Managing Director and Chairman of the Country Management Committee, Milton Brady, at a private media breakfast held at the Jamaica Pegasus Hotel, earlier this week.
Brady said: "Over 70 per cent of our total assets are made up of customer loans and more than half of our loan book is made to the productive sector. This clearly makes us the market leader in loans to the country's productive sector. We do see the productive sector as the engine of growth of the Jamaican economy."
For the year ended October 31, 2008, FCIB's Jamaican loan book came to J$35 billion, up $4 billion from the $31 billion recorded in the previous year. Nevertheless this still represents the lowest growth in the last four years.
Of the areas in the productive sector, most of the loans go to tourism, then distribution, followed by manufacturing and then electricity and power generation. Brady proclaimed that FCIB is the market leader in arranging and placing these transactions.
"It has been our stategy from day one to target the productive sector. If you depend on repos then you have no control of your fate, as we have seen with many local institutions after the fall of Lehman Brothers," declared Brady, who also serves as Managing Director for Corporate Investment Banking.
Many of Jamaica's leading banks have seen the profits of their retail arm drastically reduced as a result of Loan Loss Provision (LLP).
Scotia Group's retail arm saw its pre-tax profit at J$1.29 billion for the quarter ended April 2009, as opposed to $2 billion for the same period in the previous year.
"The Loan Loss Provision (LLP) is the major reason for decline in revenue; if LLP was excluded the segment would decline marginally by 7 per cent. This decline was attributable to the slowdown in growth of the retail loan portfolio, " said Scotia Group's CEO, Bruce Bowen.
National Commercial Bank saw its retail arm make J$120 million less than it did for the same period in 2008. Loan loss charges were J$190 million more for NCB during the quarter, when compared to the comparative quarter in 2008.
FCIB is not reporting a severe decline in its retail banking division as a result of LLP, largely as a result of measures taken in the previous year.
"We realised as early as 2007 that something was coming down the pipe, and so we started to focus on our underwriting standards. If you look at the growth of our retail book between 2007 to 2008, you will see that we lost a little bit of market share because we intentionally upped the underwriting standards. We were anticipating the impact of the alternative investment schemes and what that would do, but if you look at our numbers now they are the envy of our competitors," said Brady.
FirstCaribbean anticipates that the next two quarters will be very challenging. The non-performing to total loans ratio was 2.2 per cent as at year-end but as the economic downturn continues over the succeeding quarters, the bank expects that to increase. FCIB's chief financial officer Lancelot Leslie added that the bank is adequately provided for in terms of its non-performing loans. In light of the current crisis the bank is encouraging its customers to come in and negotiate with its professionals before they run into problems with their loans.
A look at FCIB's corporate book reveals its non- performing loans compare favourably with those of its competitors. Brady attributes this to the fact that FirstCaribbean focuses on the top-tier players.
"In a downturn this strategy will protect us. You have to be competitive to get their business but once you do, it pays off," he added.
FirstCaribbean's Managing Director Clovis Metcalfe pointed out that one of the strategies, going forward, speaks to balance sheet management.
"Although we have done well with tourism, we are increasingly looking to infrastructure project opportunities. With so many people being laid off, there will be a number of entrepreneurs coming to the fore who no doubt will require capital. Borrowing demand from the productive sector is actually declining but what we are seeing is that borrowing from Caribbean governments is increasing," said Metcalfe.
So with the global financial crisis set to go into next year, together with a severe contraction of the Jamaican economy, what strategies will FCIB employ?
"We will be placing a greater emphasis on client value by providing "best of class" products and services to our clients which will in turn lead to referrals. We now seek greater diversification in terms of customers, industry sectors and products. Greater concentration means greater risks so we try to spread our risks.
"Clovis Metcalfe spoke to balance sheet management and he is absolutely right. We have to ensure that we maintain adequate levels of liquidity and a strong capital base. In the current economic conditions, which have seen many bank failures, liquidity and capital are of paramount importance.
"Greater productivity and control, the continuous pursuit of efficiency by investing in our people, in technology and maintaining a robust governance framework are key success factors. We have to leverage our CIBC roots. Why? Because Canadian banks are rated as the strongest and best run today. By capitalising on our parent's strengths and resources we improve our competitive position."
Speaking at the bank's AGM, also held at the Jamaica Pegasus Hotel on Monday, Metcalfe told shareholders that the Jamaican operations earned a net income after tax of J$835 million in 2008 compared with $771 million in 2007.
With respect to total revenue and operating expenses, the former grew by 12.5 per cent to J$3.69 billion and the latter by 15 per cent to J$2.31 billion. In 2007 FCIB (Jamaica) posted total revenues of J$3.28 billion and operating expenses of J$2.01 billion. Shareholder value, as measured by earnings per share, increased by 8.3 per cent from J$2.90 in 2007 to J$3.14 in 2008.
"We have shown tremendous growth in our loan portfolio over the last six years, moving from J$15.8 billion in 2002 to J$41.3 billion in 2008. In the case of deposits we went from just J$5.2 billion in 2002 to J$34.9 billion in 2008," said Metcalfe.
Commenting on FCIB's financial performance for 2008, Brady said the results were all the more remarkable when viewed against the background of the impact of the original sub-prime mortgage phenomenon and the global financial meltdown and recession, including reduced tourist arrivals and remittances, public and private capital expenditure, prices of high-end residential real estate and associated rises in unemployment and debt levels.
Article by: Al Edwards
Source: Jamaica Observer