Jan 2006 Financial News

NCB weathers Ivan, economy

Jan 12, 2006

“Where challenges exist, opportunities abound.” For Patrick Hylton, the managing director of the National Commercial Bank Group of Jamaica, the Jamaican economy although going through its challenges, still holds promise to the bank.

Jamaica has seen some slippage in the exchange rate, with the Jamaican dollar ending the year about eight per cent lower against the US dollar at around J$64 to US$1.

Inflation was also on target to finish the year at around 13 per cent, driven by food prices.

Interest rates have remained high—around 12 per cent.

The NCB group recorded a net profit of J$4.3 billion for 2005, up 34 per cent from the previous year. Operating income was up 23 per cent, while assets grew to J$193 billion, up ten per cent from 2004.

“Whereas in previous years there was a greater reliance on trading facilities, this year we were able to concentrate on core operations,” Hylton said last week.

The bank itself has gone through challenges, from a branch efficiency exercise to the departure, late in the year, of deputy chairman Kris Astaphan.

“It is due to our ability to read the market and overall improvement in core performance of bank,” Hylton said in a telephone interview. “For the short term, the reduction in interest rates would have slowed because of inflation expansion and the blip in the foreign exchange market. However, over the next few months I wouldn’t be surprised to see more measured reductions.”

Those reductions should lead to an increase in loan demand and NCB is looking especially at the personal and small business sectors, especially tourism. There will also be opportunity in mining and infrastructure.

There has already been loan growth in Jamaica.

In terms of the branch efficiency programme, NCB reduced its staff in its retail operations by about 17 per cent, from about 1,400. A number of full time jobs were also converted to part-time. Operations were streamlined, with some of the more mundane tasks being automated.

“It happened in a year in which the performance of the institution was also improving,” Hylton said, adding that while the bank was successful, a comparison against other institutions internationally showed that NCB had to streamline its operations.

The departure of Astaphan

By far, the most high-profile departure would have been that of Astaphan, who left in December. Astaphan’s departure from NCB was part of his split from AIC and Michael Lee Chin, the billionaire who was partner and chairman of both AIC and NCB.

There were no details given about Astaphan’s resignation but the media in Jamaica said it was due in part to disagreements with top executives at the bank and, eventually with Lee Chin himself.

The incident, Hylton said, has not had an effect on the bank: “Kris was not operational, not an executive. I haven’t seen any real impact.”

Top executives have come and gone since Lee Chin took control of the bank in 2002, among them former managing director Aubyn Hill.

“I think in those couple of years things have been stable. Many of the people who have left have been those who left for bigger opportunities,” Hylton said.

Dyoll and Blue Cross

NCB will be looking forward to completing its acquisition of Blue Cross of Jamaica. NCB Group has made an offer to acquire 75 per cent of the health insurance provider. The deal is now awaiting approval from parent company Blue Cross/Blue Shield of the US.

In 2004, Blue Cross earned J$1.9 billion in gross insurance premiums and another J$262 million in gross income from health fund management.

The insurance provider generated a net surplus of J$228 million, which pushed the company's accumulated surplus to just under $1 billion as at the end of 2004.

“We saw the opportunity in Blue Cross, rather than start greenfield,” Hylton explained.

NCB will also be trying to put its experiences with another insurance company—Dyoll—behind it in 2006. Dyoll Insurance Co went bust last year after it was unable to pay claims arising out of hurricane Ivan.

NCB had a 44 per cent stake in the insurance company and, according to NCB’s 2005 results, the bank took a J$468 million hit because of the closure of Dyoll.

“The Dyoll impact, was significant but we took it because we are a robust company and that’s the nature of business. What is important is that we are robust enough,” he said. “The importance of capital adequacy cannot be understated.”

The future

“We are a major player in Jamaica and we will continue to build the value of the franchise we have here,” Hylton said.

Within the next 18 months the bank will start to look for opportunities outside Jamaica. He insisted, though, that for now there is nothing on the table.

“We have spent a lot of time ensuring we have a robust business model. Maybe it’s time to look at Caribbean expansion,” he said.

Luis Araujo
The Trinidad Guardian
Business Guardian
Thursday, 12th January, 2006.
http://www.guardian.co.tt/bussguardian6.html