Jun 2010 Financial News

Bad debt now higher than Olint loss

Jun 09, 2010

NON-PERFORMING loans (NPLs) across the financial sector jumped 78 per cent over 12 months to $19.4 billion to March 2010 which equals investments in failed FX trading firm Olint, which was partially blamed for the rise.

Trend data provided by the Bank of Jamaica (BOJ) showed that NPLs, which are unserviced over three months, jumped over 12 months by $8.5 billion to $19.4 billion as at March 2010. The size of NPLs across the financial sector jumped for the second straight quarter having eased in September. NPLs in 2009 were $10.6 billion in March; $14.6 billion in June; $14.2 billion in September; $16.4 billion in December; and $19.4 billion in March.

NPLs accelerated in the June quarter of 2008 when the local recession reduced economic activity and employment.

NPLs were also affected according to some analysts including Dennis Chung by the fallout of the unregulated schemes including Olint as investments were secured via loans. Olint liquidator, John Connolly deemed Olint led by trader David Smith a Ponzi scheme purporting to make high returns from foreign currency trading. He discovered that 6,000 people had invested US$220 million ($19.2 billion) in the operation; which is equal to the NPLs to date.

Interestingly, provisions for loan losses made to cover these NPLs have fallen year-on-year from 86.5 per cent to 69.9 per cent as at March 2010, according to the latest prudential indicators released by the BOJ. Commercial banks accounted for the bulk of NPLs at $13 billion with building societies at $5.5 billion and FIA institutions or near banks at $841 million. Commercial banks also had the fastest rate of NPL growth over the 12-month period at 81.8 per cent followed by building societies at 75.7 per cent and FIA at 42.5 per cent.

The level of bad debt is not yet affecting the stability of the financial sector as it accounts for 5.5 per cent of total loans up from 3.1 per cent a year prior. However, NPLs represent 9.0 per cent of total loans for FIA institutions, which is trending closer to the ceiling set by BOJ in its standards and guidelines; banks and building societies are much lower at 5.1 per cent and 6.4 per cent respectively.

The financial sector has been affected by the ongoing recession in Jamaica which was triggered by global economic fallout two years ago. The aggregate financial sector increased gross loans by only 0.7 per cent to $351.7 billion at March 2010 compared with the similar period in 2009. Commercial bank total gross loans decreased 0.8 per cent to $257 billion, building societies increased 7.2 per cent to $85.4 billion and FIA institutions declined 12.1 per cent to $9.3 billion.


Source:
STEVEN JACKSON Business writer
jacksons@jamaicaobserver.com
Jamaica Observer
Wednesday June 09, 2010

http://www.jamaicaobserver.com/business/Bad-debt-now-higher-than-Olint-loss