Milton Brady, managing director of FirstCaribbean International Bank Jamaica, a leader in loan growth in the banking sector. - File

Ashford W. Meikle, Business Reporter

Milton Brady's bank is growing fast, but remains limited by its size and confined to fourth place in Jamaica's $420 billion commercial banking sector.

Revenues and profits are up but one of his challenges will be the reining in of expenditures at FirstCaribbean Inter-national Bank Jamaica (FCIBJ), said Brady, who began managing the listed bank in early 2005.

That challenge deepens if he presses ahead with plans to boost his network of 12 by three new branches this year, a $400 million investment.

One new branch is already on stream in Savanna-la-Mar, Westmoreland.

Last year, the FirstCaribbean International Bank (Jamaica) Limited CEO pushed his team to deliver a 38 per cent increase in profits by growing the loan portfolio by targeting growth centres of the economy: tourism and construction, and bedrock manufacturing.

Back-to-back strong growth

"The increase in our loan portfolio follows a similar trend the year before, when it grew by some 60 per cent so it is back-to-back strong growth.

In fact, in 2004 our loan portfolio was $8.6 billion and now it is $20.3 billion. So that has more than doubled in two years and we see very little signs of that slowing down," Brady told the Financial Gleaner.

Its total assets of $20 billion in 2004 grew by a decisive 65 per cent to its current position of $33 billion.

That now gives FCIBJ an eight per cent share of the commercial banking sector measured on assets, but it had a 14 per cent share of loans to September 2006.

The bank posted net income of $625 million compared to $451 million the previous year, according to its consolidated accounts for the year ending October 31, 2006, on the back of a 32 per cent increase in its interest income, which climbed to $3.1 billion, compared to $2.4 billion the previous year.

And, after accounting for its interest expenses, net interest income climbed by 37 per cent, to $2.1 billion.

Brady said however that his company's performance last year was even better than the numbers show, noting that fat from a one-off sale in 2005 distorted the true position of FCIBJ in 2006.

"Actually, if you look at the underlying numbers, it is more than that - it is a 98 per cent increase," he said, referring to the $135 million the bank gained from the sale of FirstCaribbean International Securities in 2005.

Discounting that gain, the bank would have earned $315 million in net profit for its 2005 financial year.

Predictable

FCIBJ's turnaround was predictable, given Brady said the bank's penchant to accurately read where the economy was headed.

"When I joined the bank two years ago, I looked at the results over the preceding four, five years; what I saw was an increase in profits but the underlying business had not changed. Then it was purely a factor of the interest rate environment and I realised that that could not continue. So we put together a strategy that we took to our boards to show that we need to position ourselves to take advantage of the improvements in the economy."

To accommodate the bank's shift in its business model, FCIBJ received a capital injection of $1.3 billion from its parent FCIB, after shareholders voted at an extraordinary general meeting last March to allot 85 million ordinary shares out of an additional 100 million shares of 50 cents each which were created to increase the bank's share capital.

That transaction resulted in FCIB increasing its stockholdings in the Jamaican subsidiary to 96.21 per cent.

Strategy works

"The capital injection was necessary because we had done our assessments [and] we saw that the rates would be coming down quickly and we had to position ourselves rather quickly," said the bank executive.

The strategy seems to have worked.

"If you look at the loan growth at the entire banking sector last year, I think the entire sector increased by about $15 billion and FirstCaribbean accounted for over $8 billion of that," said Brady.

Specifically, of the island's six commercial banks, some 75 per cent of FCIBJ's assets are in loans, compared to the industry average of 33 per cent.

There have, however, been murmurs in the market about the quality of the loans, but the executive dismissed the concerns, pointing to FCIBJ's conservative business model.

"While our loan portfolio is growing significantly, our credit quality is also improving [because] we look at the sectors that are strong and growing and we look for the best performers in that sector and that is who we go after first," said Brady.

"If you look at our non-performing loans compared to our portfolio, we are way below the industry average; our figure for last year was 1.4 per cent while the industry average is around 2.2 per cent. We focus on quality — that's why we were able to survive the [financial sector meltdown] of the 1990s."

But back on the subject of its operating costs, if FCIBJ is to squeeze more profits from each dollar of revenue, it has to reign in expenses.

Its cost to income ratio used by banks to judge efficiency was a more palatable 62 per cent last year, coming down from a high of 70 per cent in 2005, but still not in line with the industry.

Administrative and staff costs, for example, went up by 12 per cent, from $1.5 billion in 2005 to $1.7 billion for the 2006 financial year.

"Our cost control is focused on building our revenue side and maintaining efficiencies. We expect in another year or two, our cost to income ratio will be down to 50 per cent which is the international standard," said Brady.

Commercial Banking Sector

Loans to Assets Ratio

September 2006

BNS Jamaica37.62%

Citibank4.30%

FCIB Jamaica60.62%

First Global18.67%

NCB Jamaica26.57%

RBTT Bank41.62%

ashford.meikle@gleanerjm.com