Ashford W. Meikle, Staff ReporterTHE NATIONAL Commercial Bank Group Limited (NCB), bolstered by a huge jump in its net trading income, income from loans and a dramatic dip in interest expenses has returned a healthy performance for its unaudited first quarter to December 31, 2004.
But, while NCB's bottomline came good the group's core revenues, interest income, registered a nine per cent decline, falling to $5.2 billion (from $5.7 billion for the corresponding period in 2003).
In fact, the decline in core revenues was caused by the 19 per cent fall in interest income from securities. The group, which earned almost $4.6 billion from securities in 2003, saw a dip to $3.7 billion for its 2004 first quarter.
But, to the group's credit, it posted a healthy 34 per cent increase in interest revenue from loans a noteworthy performance given the fact that banks have had to reduce interest rates (in the so-called "loan wars") to attract customers who have a plethora of institutions from which they can access loans.
SHRINKING SPREADS
The bank's unsecured loan, 'Payroll Plus', and its heavy marketing of motor vehicle loans appears to be paying off.
Interest expenses declined by 16 per cent (to $2.6 billion) largely as a result of shrinking spreads caused by the lowering of rates by the central bank. However, the decline in interest expenses did not have any effect on net interest income which - statistically and in real terms - hardly moved from $2.55 billion to $2.56 billion.
As previously mentioned, it was the exceptional returns from other income which contributed heavily to NCB's bottomline in the first quarter. In fact, the consolidated figures in this category indicate a staggering 125 per cent growth over 2003. The bank earned a huge $1.4 billion in other income compared to the $628 million posted in the first quarter of 2003.
The biggest jump was recorded by net trading income (or gains on foreign exchange) which leaped by a 329 per cent increase to $812 million (from the corresponding $189 million). However, given the fact that the first quarter includes the Christmas season - a period of robust cambio activity - it is unlikely that the group will achieve similar results in the ensuing quarters.
SUBSIDIARIES' CONTRIBUTIONS
The next increase came from net fee and commission income, which recorded a respectable 39 per cent increase from $399 million to $556 million. The group's other operating income increased to $42 million a six per cent growth over the $40 million earned during this period for 2003.
But, in crunching the numbers, it is clear that the group's subsidiaries made a significant contribution to the bottomline. For example, NCB Capital Markets (NCBCM) the largest brokerage house in Jamaica was responsible for almost half of the group's profits.
In an interview with the Financial Gleaner, managing director of NCB Capital Markets, Christopher Williams, was modest about the NCBCM's contribution. He emphasised that the brokerage house's success is part of the forward thinking on the part of group managing director, Patrick Hylton.
He emphasised that it is more important to see NCBCM as part of the cohesive whole that NCB is supported by the branch network, the board of directors, the staff and its customers.
Total revenues for the group increased by almost six per cent to $6.6 billion, an increase of almost $285 million for the period under review.
Total expenses grew by 39 per cent, increasing form $970 million to $1.3 billion. While staff costs and other operating expenses appear to be under control, the biggest challenges facing the group are depreciation costs and loan loss provision. At $252 million, depreciation registered a 74 per cent increase. Provision for credit loss increased to $165 million, a 374 per cent jump from the $35 million allocated in 2003. It is hoped, however, that this will not become the group's achilles' heel.
But the group does not believe this will be the case.
"That's a post-Ivan phenomenon related primarily to credit card balances," said the group's Chief Financial Officer, Dennis Cohen, as he explained the significant jump in loan loss provision. He told the Financial Gleaner that, "a number of these balances went beyond the ninety days (overdue) period" because persons tried to recover from the financial hiccups caused by the hurricane.
However, he emphasised that the bank has to comply with regulatory requirements and make the provisions. Notwithstanding, he's confident that the group is managing its overdue debts. "We have contained this situation significantly," he remarked.
Yet, looking at the overall picture, NCB had a strong and exceptional first quarter given the contracting trend of the local financial industry.
It appears that having taken a sweeping purview of the changing and dynamic mechanics of the economy, the group's management has implemented the necessary strategic decisions to drive revenues and profit as evidenced by the 44 per cent increase in net profit from $746 million to $1 billion.
Note: Figures are approximated for ease of analysis.
