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Banking group remains resolute in its aspiration of becoming a world-class Caribbean financial ecosystem

NCB Financial Group, Jamaica’s largest banking group, has managed to maintain its profitability but at a declining rate.

NCB Financial Group is reporting  net profit of $9.2 billion for its half-yearly performance ended March 31, 2021, a decline of 31 per cent or $4.1 billion from the prior year. Consolidated net profit attributable to stockholders was down or $3.7 billion to $5.9 billion or a 38 per cent decrease from the prior year.

NCB’s performance reflects the impact of the reduced economic activity caused by the pandemic. However, the banking group, “remains resolute in focussing on the successful execution of initiatives as we advance our aspiration of becoming a world-class Caribbean financial ecosystem. Our business model positions us to benefit from numerous opportunities, which have surfaced during the pandemic.”

“the challenges posed by the pandemic re-enforces the importance of our bold aspirations to continuously transform the Group.

NCB Financial Group

Despite the downturn in business, NCB Financial Group continues to bolster its services through ongoing investments in technology, enabling it to deliver enhanced digital solutions while ensuring that it emerges from the pandemic stronger and prepared for the post pandemic environment, which will be focused on recovery and growth.  

The banking has emphasised that, “the challenges posed by the pandemic re-enforces the importance of our bold aspirations to continuously transform the Group. As we continue to pursue opportunities and execute strategic initiatives, we are poised to strengthen our regional position and remain optimistic that we will be able to thrive in the shifting economic environment”.

Commendable performance in core business activities

There was commendable performance from the group’s banking, investment and insurance activities, despite the reduced profitability. Operating income of $59.8 billion represented an increase of nine per cent or $5.0 billion over the prior year.

The improved revenue was, however, offset by a $5.5 billion or 13 per cent increase in operating expenses. Banking and investment activities amounted to $46.6 billion, represented a 17 per cent or $6.6-billion increase when compared to the prior year’s results.

This performance was primarily driven by improved gains from investment activities, which rebounded to $8.4 billion for the current six-month period. This was due to more favourable market conditions and improving securities prices.

Credit impairment provisions also benefited from an improved economic outlook compared to the previous financial year and prudent delinquency management strategies, resulting in a $684 million, or 21 per cent, reduction in expected credit losses.

The outlook for NCB Financial Group’s credit impairment provisions was weighted towards the worst-case scenario from the prior year and reflects the adequacy of the banking group’s earlier provisions.

The continued downward trend in loan rates has caused a tightening of interest spreads, resulting in net interest income reducing slightly, despite the increases in loans, securities and funding balances. Reduced retail and corporate activity has significantly impacted NCB’s fee income, specifically card issuing and acquiring, which is heavily dependent on travel, entertainment and restaurant activities.

The  decision to waive fees at electronic channels also affected this revenue source.

Insurance activities and rising operating expenses

The net result from insurance activities totalled $13.2 billion, a decrease of 11 per cent or $1.6 billion from the comparative prior year period. Net underwriting income increased by $3.9 billion or eight per cent over the prior year.

There were improvements in the property and casualty insurance business. The growth in net underwriting income was tempered by gross insurance benefits and claims along with insurance commission and other selling expenses increasing by seven per cent or $2.5 billion and 63 per cent or $3.3 billion, respectively. 

Operating expenses was up 13 per cent to total $47.1 billion, an increase of $5.5 billion. Staff costs of $23.4 billion, increased by $2.4 billion or 12 per cent over the prior year 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.

Other operating expenses increased by $2.1 billion due to the increased technology costs required to enhance our digital platforms coupled with additional marketing expenditure as the group sought to improve its customers’ experience and educate them on the use of its digital channels.  These increased costs outpaced the growth in revenues resulting in an increased cost to income ratio of 75.66 per cent, up from 71.79 per cent in the prior year.

Loans and Advances

The Group’s loans and advances, net of credit impairment losses totalled $477.1 billion, an increase of $46.2 billion or 11 per cent over the prior year. Non-performing loans amounted to $30.5 billion as at March 31, 2021, an increase of $5.8 billion or 23 per cent over the prior year.

This represented 6.2 per cent of gross loans, up from 5.6 per cent in the prior year. Deposit, which is the largest source of funding, totalled $603.3 billion, an increase of $83.8 billion or 16 per cent over the prior year.

This increase across most of its customer segments reflects customers’ confidence in the financial group.