Reading Time: 4 minutes

Big 34% drop in shareholders’ profit at NCB caused by flat revenues and higher expenses

Jamaica’s largest banking group, National Commercial Bank (NCB), is finding it increasingly difficulty to maintain its profitability, which continues to dwindle in the face of flat revenues compounded by higher expenses.

In its latest quarterly results for the period ended December 31, 2020, the NCB Financial Group saw a big drop of 34% in shareholders profit, which closed at $3.92 billion relative to $5.90 billion in 2019. The company like it did in the three previous quarters will not be paying a dividend for the quarter just ended.

Earnings per share (EPS) for the three-month period totalled $1.59 relative to $2.39 booked in 2019. The trailing 12-month EPS amounted to $6.93.  

NCB stock price closed the trading period at $137.31 on February 4, 2021 with a corresponding P/E ratio of 19.80 times. Net interest income for the quarter declined by one per cent to $13.82 billion coming from the $13.93 billion posted for the same period in 2019.

In its quarterly report to shareholders, NCB noted “that compared to the profitability of the prior year, the group’s performance for the period declined on account of relatively flat revenues coupled with a nine per cent increase in operating expenses. These factors led to a 17 per cent or $1.7 billion decrease in operating profits to $8.2 billion for the quarter”.

Marginal rise in net interest income

Net interest income for the first three months closed at $20.84 billion, five per cent above the $19.81 billion reported for the corresponding period ended December 31, 2019. Interest expense year over year rose 20 per cent to close at $7.03 billion coming from $5.88 billion in 2019. Net fees and commission income amounted to $5.87 billion, which was an eight per cent decline when compared to 2019’s figure of $6.41 billion.

According to NCB financial group, “this was primarily as a result of the reduced transaction volumes in our payments services business segment stemming from the general economic downturn and our continued encouragement of the use of lower cost self-service and digital options”.

Fee and commission income was down to $6.99 billon coming from $7.68 billion in 2019, while fee and commission expense was also down to $1.11 billon coming from 2019 when the company posted $1.26 billion.

Dividend income declined by 17 per cent to $576.80 million, coming from the $693.38 million recorded in 2019, while other operating income was equally down by 18 per cent to $685.76 million. Credit impairment losses fell 26 per cent to $1.17 billion in contrast to $1.57 billion recorded for 2019.

On a positive note, the group’s gain on foreign currency and investment activities rose nine per cent to $5.41 billion compared to the $4.98 billion reported in 2019. The reductions in revenues were partially offset by improved gains from foreign currency and investment activities due to improving fixed income and equity market conditions.

Net results from insurance activities, for the three months ended December 31, 2020, increased seven per cent to $8.60 billion coming from $8 billion in 2019. There were improvements in the life, health and pension segment’s premium income as well as growth in the property and casualty insurance business mainly in the Dutch Caribbean.

Insurance business posted creditable performance

Insurance premium income rose eight per cent to $36.44 billion, while reinsurance commission income advanced 83 per cent to $3.56 billion. Insurance premium ceded to insurers amounted to $12.18 billion as compared to 2019 when the amount was $9.93 million. Commission and other selling expenses surged to $4.96 billion compared to $4.52 billion in 2019.

Net operating income for the quarter amounted to $33.78 billion compared to $33.29 billion booked the prior corresponding quarter. Total operating expenses for the first quarter amounted to $25.56 billion, an increase of nine per cent compared to the $23.35 billion reported for the three months ended December 31, 2019.

According to management, “staff costs, the single largest operating expense of the Group, was the main contributor to the increase primarily due to the annual increases in salaries, wages and allowances coupled with incentive payments within the current period related to the prior financial year”.

The expenses are as follows:

• Staff costs increased 16 per cent to $12.32 billion relative to $10.65 billion in 2019.
• Other operating expenses fell by one per cent to $10.54 billion (2019: $10.62 billion).
• Depreciation and amortization grew 15 per cent to $2.29 billion (2019: $1.99 billion).
• Finance cost grew 391% to $416.41 million (2019: $84.79 million).

Consequently, operating profit decreased 17 per cent to total $8.22 billion coming from $9.95 billion in 2019. Profit before taxation decreased 16 per cent to $8.15 billion relative to $9.74 billion in 2019. Following taxation of $2.30 billion, the net profit for the three months ended December 31, 2020 totalled $5.85 billion, a 25 per cent decrease compared to $7.77 billion for the corresponding period of 2019.

Balance Sheet at a glance:

Total Assets increased by 12 per cent to $1.80 trillion as at December 31, 2020 from $1.61 trillion a year ago. This increase stemmed mainly from the growth in ‘Pledged Assets’ which moved from $397.56 billion in 2019 to $469.09 billion in 2020, an 18 per cent increase.

Other notable contributors to the increase in the asset base were ‘Due from other banks’ which moved from $128.30 billion in 2019 to $177.52 billion in 2020, a 38 per cent increase. Additionally, ‘Loans and advances net of provision of credit losses’ closed the period at $461.26 billion (2019: $438.38 billion).

Shareholders’ Equity as at December 31, 2020 closed at $154.98 billion relative to $148 billion a year ago. This resulted in a book value per share of $66.88 (2019: $60.00)