Feb 2010 Financial News

NCB's net profit jump 16%

Feb 01, 2010

NATIONAL Commercial Bank (NCB) made $2.77 billion net profit for the three months ending December 31, 2009.

But at Friday's investor briefing held by the bank at its New Kingston headquarters, NCB's group managing director Patrick Hylton said the Jamaica Debt Exchange (JDX) would affect the banks net interest income in the coming period.

NCB said 72 per cent of its operating income is from net interest income a function of its earnings from interest on government bonds, whilst the group's balance sheet as at December 31, 2009, showed investment securities totaling $164 billion -- nearly double its loan book of $87.9 billion.

However, Hylton maintained that the bank would remain a 'financial fortress' given that it had done the requisite projections of the effect of the JDX and begun to implement contingencies for fall off in profits.

"We have modelled quite extensively the impact of the debt exchange programme on the future prospects for NCB and having gone through that exercise, I am pleased to report that while we expect that naturally, since the interest represents a significant portion of our assets it will have a negative impact on our income," Hylton said. "Given a number of initiatives that we have implemented and given strategies we have pursued, we expect that the group will remain very profitable and we expect that we will maintain stronger levels of capital and strong levels of liquidity. All the scenarios that we have looked at support those assertions."

The Jamaica Debt Exchange, which ends for investors on Wednesday next week, will see participants and holders of high interest government bonds, exchange them for bonds with lower interest rates and longer maturity periods. The successful exchange will result in a reduction of over $40 billion in interest payments by the government.

NCB's net profit for the December quarter was 16.3 per cent higher than the net profit earned in the comparative period in 2008, when net profit was $2.38 billion. Earnings Per Share (EPS) also grew from 97 cents to $1.13 reflecting the increase in net profit, as did operating revenue, which increased by 19.6 per cent to $7.5 billion.

"We are particularly pleased to still be reporting double digit growth in what we all agree is a very difficult environment and we believe that our success is attributable to the loyalty and support of our customers, the skill and focus of our staff, our management and our board," Yvonne Clarke, Group Chief Financial Officer said in reporting the financial results.

Clarke stressed the importance of the Bank's cost containment efforts despite an increase in operating expenses, which resulted in the main from an increase in staff costs of $383 million or 18 per cent following increases in salaries and other staff related costs. Provision for credit losses of $31 million also contributed to the increase in operating expenses.

"We have maintained our focus on cost management and the results show where we are able to contain the increases in operating expenses relative to the increases in operating income," Clarke said.

Other key performance indicators, such as the cost to income ratio, declined 1.2 per cent to 50.6 per cent. Return on Equity declined from 30.2 per cent to 26.7 per cent as growth in equity at 32 per cent outstripped the 16 per cent or $10 billion growth in profit. However, return on assets increased 10 per cent, on an increase in profits.

"The main contributor to the growth in equity is a the change in our fair value reserve. It has moved from a negative $2.5 billion to approximately 500 million positive at the end of December 2009," Clarke disclosed.

According to Clarke, interest income from loans has remained relatively flat with a growth of approximately $1 million in interest income, despite an almost $4 billion increase in loan balances.

"What has happened is that the US dollar: JA dollar mix of our loans continues to change and as at December 2009 we were 56 per cent US$ denominated. And with the lower interest rate on US dollar notes it brings down the average," Clarke said.

Interest Income from securities has increased by $1.3 billion or 26 per cent, a function of growth in yield and growth in portfolio, Clarke said. "Investment portfolio has increased by eight per cent and we have seen a growth of approximately 150 basis points in our yield," she said.

Interest expenses also decreased one per cent as well as the average cost of funds, which declined 89 per cent bases points. "This is a function of the fact that we have large Libor-based liabilities and the Libor rates have gone down approximately 200 bases points over the two periods," Clarke said.


Source:
ALICIA ROACHE
Sunday Finance reporter
roachea@jamaicaobserver.com
Jamaica Observer
Sunday, January 31, 2010

http://www.jamaicaobserver.com/business/NCB-first-quarter