Wayne Wray, president of First Global Bank. Jamaica's smallest commercial bank posted flat profits of $407 million in 2006. - File

Ashford W Meikle, Business Reporter

FIRST GLOBAL Bank, which posted flat results for its 2006 financial year, has seen a surge in loans booked during its first quarter, Managing Director Wayne Wray, told Financial Gleaner this week.

The bank, he concedes, is now forced to grow its loan portfolio, given its current flat results.

First Global's total loan portfolio is about $4.5 billion, "which would mean that we are about $400 million in net loans," said Wray.

"So, we would have booked about $600 to $650 million in new loans. When you have repayments it will come down to about $400 million."

The banker said First Global's growth trajectory was in line with expectations of a 50 per cent increase in its loan portfolio.

"We are taking advantage of opportunities as they arise," he said.

"Everybody is borrowing and what we are seeing is quite a number of businesses that are borrowing to retool or individuals who feel that their salary is sufficient for them to take another loan. You can't be sitting doing nothing while your competitors are out there."

First Global, one of the smallest of the six commercial banks, with an asset base of $22.5 billion, posted net profit of $406.9 million in 2006 - just $113,000 more than the $406.8 million outrun for the previous year - on the back of a nine percent increase in net interest income of $798.2 million.

Accordingly, earnings per share were flat at 65 cents.

"When interest rates are falling, you are going to find that on the liability side, repricing is slower on the asset side so you find that when you are either making new loans or you have variable rate loans, your income from assets are going to be falling faster than your deposits or repricing," said Wray.

"The net interest spread is going to be narrow."

The results reflect the bank's asset mix. For example, total loans relative to the bank's assets is roughly about 18 per cent, compared to the industry average in the mid '30s. In contrast, almost 70 per cent of First Global's assets are concentrated in securities.

"We have a large investment portfolio which we carry to ensure that it is adequate to make any loans, large or small, and that portfolio also declined in terms of interest rates."

The Jamaican dollar also depreciated in 2006, further eroding targeted income from investments.

Based on what is generally agreed to be positive economic trends, such as single digit inflation - which rounded out to 5.8 per cent in calendar 2006 - the central bank reduced signal rates on its open market instruments three times last year, pushing the 180-day security to 12 per cent in December.

Fully one per cent was shaved off the benchmark six month T-Bill in the same period, declining from 13.3 per cent to 12.3 per cent. The yield is down even further as of the last auction in March, at 11.65 per cent.

Still, Wray defended the bank's asset mix, saying First Global is more interested in booking quality loans, rather than running with the crowd.

"You can't just throw loans on the books. You need loans that are properly analysed, properly assessed and the due diligence done," he said.

"I don't think it is a conservative posture but I do believe that it's ensuring that we put on assets that we consider to be good assets."

There seems to be some merit in Wray's argument for, while the bank's loan portfolio grew by 36 per cent, to just over $4 billion, its loan losses declined by 52 per cent, to $25 million.

First Global Bank

Interest Income$2.06 billion

Net Interest Income$798.2 million

NII/Total Income38.7%

Net Profit$406.9 million

Net Profit Margin19.7%

Total Assets$22.5 billion

Return on Assets1.8%

Equity$2.76 billion

Market PositionNo. 6 of six banks

ashford.meikle@gleanerjm.com