Nov 2010 Financial News

NCB posts record profit of J$11 billion...Now neck and neck with Scotiabank

Nov 05, 2010

PATRICK Hylton, group managing director, National Commercial Bank (NCB) may outline the number of structural challenges faced by the bank during the financial year 2010, but these did not prevent NCB, the largest bank in Jamaica by assets, branch network and capital base, from making a record profit of J$11 billion this year, eight per cent over the just over J$10 billion recorded last year. The implementation of the Jamaica Debt Exchange (JDX) was expected to reduce profits, but instead, NCB had a bumper year.

Group chief financial officer, Yvonne Clarke, ran through the numbers yesterday at the Investors' Briefing to announce the end of year results at the Bank's Recreation and Wellness Centre on Phoenix Avenue in Kingston. NCB's profits have grown 22 per cent over the past 10 years.

The remarkable performance was a contribution of all subsidiaries, from which NCB Jamaica and NCB Capital Market (NCBCM), the wealth management arm delivered 58 and 23 per cent of the profitability to the Group respectively. NCB Insurance (NCBIC) contributed 15 per cent.

NCBCM returned a 39 per cent or J$700 million increase in net profit and a 48 per cent or J$1.1 billion improvement in operating profits. While net profit and operating profits both decreased by one per cent and four per cent respectively, NCBIC saw a 15 per cent growth in net interest income and a 31 per cent growth in premium income. Dennis Cohen, deputy group managing director and CEO, NCBCM cautioned though that while the results are good, they have happened "in spite of many challenges", among them the global financial crisis and the Jamaica Debt Exchange (JDX).

Growing operating expenses

Though the company's operating revenues increased 8 per cent to J$29.3 billion year on year, the cost to income ratio outpaced it, increasing to 51.3 per cent up from 47.7 per cent last year. Sixteen billion of the revenue was used to finance the operating expenses, Clarke said. She said this increase was caused by staff costs and other operating expenses climbing during the year.

Staff costs grew 16 per cent or J$1.3 billion as a result of the redundancy effected this year, while other operating expenses increased 21 per cent or J$907 million. Among the major drivers of this increase in costs were policy holders benefits and reserves which increased J$318 million; repair and maintenance of computer equipment up by J$83 million; a J$73 million increase in insurance costs and a J$77 million increase in electricity costs, despite the energy efficiency measures implemented by the company, Clarke said.

Net interest income contributed 70 per cent to revenues

The Group's operating mix was dominated, as it was last year by net interest income which c0ontributed 70 per cent of the revenues, even after the JDX. Net fees and commission income contributed 20 per cent, or J$5.8 billion up from 18 per cent in 2009; while gains on foreign currency and investment activities, at 7 per cent declined from 10 per cent last year. Insurance premium income grew 1 per cent, while other operating income remained at 1 per cent year on year.

Increase in retail banking fees

Retail banking fees alone increased by J$121 million on a combination of volume and price increases, said Clarke.

Among the factors that have helped NCB to maintain its operating income are increases in core deposits, repurchase agreements from NCBCM, loan pricing and effective balance sheet management.

NCB is currently ranked second in terms of deposit market share, but has gained some ground on the competition, with an 11 per cent growth in customer deposits, an increase of J$14 billion over the September 2009 level. At that time NCB's customer deposits were 34.7 per cent of the market, while at end September 2010, deposits were 35 per cent of the market. Repurchase agreements in NCBCM increased 13 per cent, or by $8.5 billion year on year to close September at $72.8 billion.

Reducing interest rates

However, when quizzed on the effect of yield spreads on the performance of the bank, Hylton said the spreads should be interpreted within the context in which they occured.

"We have reduced rates," said Hylton. "The first thing which came out very quickly after the JDX was effected was a reduction in motor vehicle loan rates. That's on the consumption side."

He added that even with a 300 basis points reduction on rates, its motor vehicle loan rates are still lower than the bank's base rate. Loan rates have also reduced across the productive sector including manufacturing, mining and quarrying, tourism and agriculture he said. Hylton argued however that rates remain high on personal and consumption based loans because these are tied to base rates and reflect a higher risk to the bank.

"Interest rates are high in Jamaica, but its not the only thing that's high in Jamaica," said Hylton. "The cost of energy is high and we are a huge consumer of energy, the cost of security is high, we consume huge amounts of security, the cost of telecommunications is high and we are huge users of telecommunications. The cost of transportation is high," he said. "The issue of addressing spreads overall is one of those things that require a comprehensive approach."


Source:
ALICIA ROACHE roachea@jamaicaobserver.com
Jamaica Observer
Friday November 5, 2010

http://www.jamaicaobserver.com/business/NCB-posts-record-profit-of-J-11-billion_8121950