Home' Trinidad and Tobago Guardian : December 22nd 2016 Contents DECEMBER 22 • 2016 guardian.co.tt BUSINESS GUARDIAN
STOCKS | BG17
NCBJ prepares for a holding company structure
The National Commercial Bank
Jamaica Ltd (NCBJ) is prob-
ably the first company listed
on the TTSE with audited ac-
counts that include the new-
style auditor's report, which
now extends over ten pages. The auditors have
selected seven key audit matters and comment-
ed on how they addressed each item.
In addition, the section headed "other infor-
mation" ends with an interesting statement:
"When we read the Annual Report, if we con-
clude that there is a material misstatement
therein, we are required to communicate the
matter to those charged with corporate gov-
Against this background, let us review NCBJ's
results for the year ended September 2016.
Revenues and profit
Total operating income rose by 9.7 per cent
to J$52.06 billion from J$47.47 billion.
Net interest income grew to J$28.12 billion
from J$25.96 billion, or by 8.3 per cent. The
interest income component expanded by 4.5
per cent to J$39.16 billion from J$37.49 billion.
Here, interest on loans and advances grew by 6
per cent to J$21.37 billion from J$20.15 billion.
In addition, interest on available-for-sale in-
vestment securities and loans and receivables
closed at J$17.61 billion from J$17.11 billion (2.9
per cent higher). Only interest from reverse
purchase agreements declined, moving from
J$117 million to J$51.2 million.
Interest expense fell to J$11.03 billion from
J$11.52 billion. Interest on repurchase agree-
ments and customers' deposits exhibited the
largest declines; the former closed at J$3.77
billion from J$5.15 billion while the latter ended
at J$2.21 billion from J$2.68 billion. In con-
trast, interest on securitisation agreements
climbed to J$3.07 billion from J$1.82 billion;
this increase mainly reflected interest on its
US$250 million merchant voucher debt issued
in May 2015.
Net fee and commission income advanced
by 11.5 per cent to J$10.91 billion from J$9.79
billion. The income component expanded by
13.4 per cent to J$13.58 billion from J$11.98
billion. Much of this increase related to higher
volumes of loans, e-commerce, unit trust and
The expenses component comprised solely
of payment services, which rose by 21.7 per cent
to J$2.66 billion from J$2.19 billion.
Gains on foreign currency and investment
activities climbed to J$4.74 billion from J$3.75
billion, or by 26.2 per cent. Net foreign ex-
change gains spurted by 33.1 per cent to J$2.1
billion from J$1.58 billion while the gain on sale
of other debt securities rose to J$2.77 billion
from J$2.23 billion or by 24.1 per cent. On the
other hand, there was a fair value loss on an
embedded put option of J$319 million (2015:
loss of J$33 million). Finally, the sale of various
equities produced a profit of J$146.2 million
compared with a loss of J$8.3 million in 2015.
Premium income rose by 4.6 per cent to
J$7.99 billion from J$7.64 billion. Life insur-
ance premiums, at both group and individual
levels, expanded by a robust 60.4 per cent to
J$1.74 billion from J$1.08 billion. Annuity con-
tracts grew by a lethargic 2 per cent to J$1.41
billion from J$1.38 billion. Meanwhile, gener-
al insurance premiums fell by 6.4 per cent to
J$4.85 billion from J$5.18 billion.
Dividend income rose to J$150 million from
J$126 million while other operating income
contracted to J$143.7 million from J$200.7
million. Total operating expenses rose by 7.9
per cent to J$33.96 billion from J$31.47 billion.
The largest component, staff costs, increased
by 15.6 per cent, moving from J$11.94 billion
to J$13.81 billion.
Other operating expenses rose by 9.4 per
cent to J$13.35 billion from J$12.21 billion. Gen-
eral consumption and asset taxes consumed
J$2.62 billion versus J$2.56 billion while prop-
erty, utilities and similar costs rose to J$2.69
billion from J$2.48 billion. In addition, licence
and transaction fees jumped from J$1.02 bil-
lion to J$1.41 billion and marketing and related
expenses closed at J$1.53 billion from J$1.47
Policyholders' and annuitants' benefits and
reserves rose from J$3.88 billion to J$4.29
billion. There were modest increases in both
annuity and general insurance contracts while
life contracts exhibited a decline in negative
reserves, which moved from negative J$1.24
billion to negative J$0.95 billion.
Two significant declines helped improve the
total expenses picture. First, the provision for
credit losses contracted to J$0.61 billion from
J$1.80 billion; this strong improvement reflect-
ed a partial recovery of a major debt during the
last quarter. Second, there was no impairment
loss on securities (2015: J$79.8 million).
These movements produced an operating
profit of J$18.1 billion, which reflects an im-
provement of 13.1 per cent over the J$16 billion
reported for 2015.
Helped by the acquisition of 29.99 per cent
of Guardian Holding Ltd in May 2016, the share
of profits from associates climbed to J$832.5
million from J$433.7 million; in 2015, the larg-
est associate was JMMB Group Ltd.
This inclusion helped push pre-tax profit
up to J$18.93 billion from last year's J$16.38
billion. After allowing for taxes (J$4.48 billion)
and non-controlling interests of J$1.19 billion,
the profit attributable to shareholders regis-
tered at J$15.64 billion versus J$12.30 billion.
These results translate into diluted EPS of
J$6.35 (2015: J$5.00).
Changes in financial position
Total assets increased by 16 per cent to
J$607.7 billion from J$523.8 billion. The largest
component, net loans and advances, rose by
14.3 per cent to J$189.06 billion from J$165.4
At the gross level, personal loans increased
from J$75.4 billion to J$84.9 billion. Loans to
the tourism sector ended at J$29.3 billion from
J$20.61 billion while loans to the distributive
trade rose to J$18.78 billion from J$17.36 billion.
The most notable decline was shown under
construction and land development loans,
which contracted to J$8.6 billion from J$14.5
Available-for-sale investment securities
and loans and receivables were little changed,
moving from J$166 billion to J$166.4 billion.
However, the mix of securities shifted from
Government of Jamaica debt to debt issued
by corporations and foreign governments as
well as equities.
Pledged assets declined to J$108.4 billion
from J$110.7 billion; this item mostly consists
of repurchase agreements.
Investments in associates swelled to J$34.8
billion from J$6.31 billion. This increase
mainly reflected the J$27.95 billion purchase
of 69,547,241 shares in Guardian Holdings
Ltd, which is 29.99 per cent of the company.
That acquisition equates to a purchase price
of J$401.92 or about TT$21.15 per share.
Sums due from other banks rose to J$43.82
billion from J$24.06 billion.
Cash in hand and balances at Central Banks
increased to J$35.37 billion from J$28.88 billion.
Here, the largest increase was shown under
non-interest bearing statutory reserves with
Central Banks, which doubled to J$29.7 billion
from J$14.7 billion.
Total liabilities rose by 15.9 per cent to
J$504.6 billion from J$435.4 billion. Customer
deposits increased by 20.2 per cent, moving
from J$227.9 billion to J$274 billion. Of this
balance, no interest is paid on J$49.8 billion
while J$174.5 billion is due within one month.
Repurchase agreements increased from
J$100 billion to J$105.97 billion or almost 6
Obligations under securitisation arrange-
ments closed at J$47.9 billion from J$44.3
billion. The bulk of this increase reflects the
devaluation of the Jamaican dollar against the
US dollar. These obligations comprise two
debt instruments: a securitisation of diver-
sified payment rights (overseas correspondent
banks) of US$125 million (J$15.99 billion) and
a securitisation of merchant voucher (credit
card) receivables of US$250 million (J$31.98
Liabilities under annuity and insurance con-
tracts increased to J$35.3 billion from J$34.7
billion. The general insurance portion declined
slightly to J$7.47 billion from J$7.62 billion.
Conversely, the life and annuity portion in-
creased to J$27.81 billion from J$27.07 billion.
Total equity rose from J$88.39 billion to
J$103.11 billion; excluding non-controlling
interests (NCBFG), shareholders' equity im-
proved to J$104.06 billion.
Fair value and capital reserves climbed to
J$8.51 billion from J$2.77 billion. The largest
increase was shown under the fair value com-
ponent, which swung from a negative J$1.19
billion to a positive J$4.09 billion.
Loan loss reserves fell to J$4.45 billion from
J$5.71 billion. The combination of lower provi-
sions, higher recoveries and reduced specific
provisions influenced this change.
Retained earnings reserve benefitted from
an allocation of J$8.81 billion from retained
earnings and closed at J$29.62 billion.
Comprehensive income of J$15.7 billion and a
transfer of J$1.26 billion from loan loss reserve
boosted the retained earnings balance; these
additions were reduced by the transfer of J$8.81
billion to retained earnings reserve, dividends
of J$5.78 billion and a transfer of J$21.3 million
to the banking reserve fund. These changes
saw retained earnings close at J$48.5 billion
from J$46.1 billion.
Net of treasury shares, 2,461,468,912 shares
were outstanding; consequently, each share
had a book value of J$42.27 (2015: J$35.91).
With the exception of general insurance, all
segments exhibited improved operating profits.
Lower premiums and higher costs drove that
division's result. Regional expansion helped
the wealth segment.
Higher loans and fees and the partial recov-
ery of a non-performing debt helped boost
profits in the corporate banking segment. The
treasury division benefitted from foreign cur-
rency and investment activities.
Share price and dividends
On December 9, 2016, NCBJ paid a dividend
of J$0.90, thus bringing the total for the calen-
dar year up to J$2.40; this compares favourably
with the J$2.20 paid during calendar 2015.
The share price closed at J$27.72 on Sep-
tember 30, 2015 after which, the news of the
proposed GHL purchase helped the share end
at J$39.94 on December 31, 2015. The price
continued along a positive course and ended
at J$41.55 last September before peaking at
J$50.33 on November 21, 2016. Last Friday, it
closed at J$49.01. At that price, the yield is
4.9 per cent.
The Bank of Jamaica cleared the way for
a corporate restructuring, which would see
NCB Financial Group Ltd (NCBFG) become
the holding company for the NCBJ group of
companies; Supreme Court and sharehold-
er approvals still have to be secured for this
structure to be fully implemented.
On November 21, 2016, NCBJ arranged fresh
financing of US$150 million, which is secured
by international merchant voucher receivables
(future credit card transactions).
Are those funds earmarked for a specific
purpose? For example, the purchase of addi-
tional shares in GHL?
I extend sincere Christmas and New Year's
greeting to all my readers.
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