Aug 2011 Financial News

NCB falters on debt management

Aug 03, 2011

Delinquencies double to J$6.7b

Parick Hylton has been outstanding at delivering profit to majority and minority owners of National Commercial Bank of Jamaica (NCB), who in turn earn consistent and sometimes generous dividend which last year amounted to J$4.6 billion.

But Hylton, who now runs Jamaica's biggest bank, has been ineffective at mastering one key and historically problematic element of his job - tamping down on loan defaults.

In the past nine months ending June, the bank has written off J$575 million of impaired debt. In the comparative period of 2010, NCB also wrote off J$658 million.

The write-offs appear to be trending down - some due to successful collections from delinquents - but NCB has also been shifting loans to the default folder at an increasingly faster pace each year and has now hit its third-lowest point within the past decade on non-performing loans (NPLs), which are now at 7.3 per cent of the total loan portfolio.

NCB disclosed at the weekend that its NPLs are now valued at J$6.7 billion, or more than double the J$3 billion of doubtful debt recorded last year.

This disclosure follows on its September 2010 yearend report that loans assessed as "substandard and doubtful" had nearly tripled from J$5.5 billion to J$15 billion.

Requests for comment on the strategies NCB is or will be pursuing to bring delinquents into line were unanswered up to press time.

Record year

NCB's record year for loan repayments in the past decade was in 2007, when just 2.34 per cent of the portfolio was assessed as delinquent. Hylton had been working with the banking group for more than four years at that point but the downward trend had set in the year before his May 2003 recruitment as deputy managing director by principal owner Michael Lee-Chin. The NPL gains have reversed since the recession to the current 7.3 per cent ratio, edging the bank closer to its second-lowest point of 8.84 per cent NPLs in 2002.

The low point in the decade was 2001 when NCB wrestled with 17 per cent delinquency. The bank was bailed out by the State - Hylton, who worked for the Government then, spun off NCB's bad debt into two vehicles - Recon Trust and Refin Trust, to save it from insolvency - and sold in that period to Lee-Chin.

The Jamaican-Canadian's initial 75 per cent stake has been diluted over the years to 59.4 per cent as at June 2011.

Hylton's bad-debt challenge notwithstanding, his strategies have positioned NCB to overtake Scotiabank Jamaica as leader in the loan market - estimated for commercial banks at J$242 billion at March 2011 and the broader central bank-regulated deposit-taking sector at J$344 billion.

NCB reported a rise in group loans to J$91 billion net of bad debt provisions at June 2011, a year-on-year increase of J$5.7 billion, or seven per cent, the bank said.

Nine-month net profit stands at J$9.27 billion - an average of J$3.9 billion per quarter, which positions the bank to eclipse last year's annual record profit of J$11 billion.

NCB is finalising plans to list on the New York Stock Exchange through a US$175 million (J$15b) initial public offering.


Source:
lavern.clarke@gleanerjm.com
Jamaica Gleaner
Wednesday August 3, 2011

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