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JM | Nov 20, 2022

NCB outperformed Jamaica’s leading players, so why the focus on dividends?

Al Edwards

Al Edwards / Our Today

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The NCB Group posted a whopping J$40 billion in net profit for 2022 and staged a remarkable comeback from recent anaemic performances.

For the September quarter it posted a net profit of $14 billion, more than doubling the $6 billion posted for the same period last year.

NCB Group’s The Atrium in New Kingston.

Last week, NCB came under fire from shareholders for not paying out a dividend despite bagging huge profits.

A senior executive at NCB, speaking with Our Today, said: “A lot of focus was placed on a disgruntled former employee who is a shareholder making some disparaging remarks about our chairman and the media lapped it up.

BEST PERFORMING FINANCE HOUSE IN JAMAICA

“What you should be zeroing in on is, how NCB outperformed its major competitors in the September quarter. We are the best performing finance house in Jamaica and the numbers tell you so.

Sagicor’s offices in New Kingston.

“Sagicor’s profits dropped by half from $8.2 billion last year to $4.1 billion. JMMB took a big hit, plummeting from $3.5 billion for the same period last year to $1.6 billion for this September quarter. Barita slipped a bit to $314 million coming from $390 million for the September quarter last year. General Accident has fallen by 39 per cent to $210 million from $344 million for the same period in 2021.

“JMMB is not paying a dividend, neither is Proven, but the media didn’t make a big deal about that – all the talk is about NCB and dividends.”

The total comprehensive income of most of the financial sector players reveal significant losses, revealing billions wiped off by fair value losses. This is due in the main to pursuing models that have them borrowing short (repos) and investing long. This means, as the yield goes up, prices go down. This has led to a significant level of repricing and looking to retained earnings to buffer against the ever-changing interest rate environment as it erodes capital. The balance sheets of local finance houses who have gone this route are taking a hammering. Many of Jamaica’s banking houses will have to keenly watch the volatility in the bond market.

Richard Byles, governor of the Bank of Jamaica. (Photo: centraljamaicaconference.org)

Speaking at the Bank of Jamaica’s press briefing on Friday (November 18), Governor Richard Byles, addressing this matter, said: “What has happened is the bond market prices both for US dollar denominated and Jamaican bonds have fallen and the yields have risen. Now the impact of that on the balance sheet of financial institutions is that their mark-to-market value has fallen. That will mean they will have to move their mark-to-market reductions to their profit and loss accounts, they can’t just leave that hanging there on the balance sheet. So, even if they are not selling the bonds, they have to recognise the bonds are worthless. Going forward, as inflation abates the rates on those bonds will go up and they will recoup those losses. If they hold these bonds they are likely to see those losses return as profits.
I think this is why we are seeing many of the institutions now saying, out of caution, we will not pay a dividend and we are going to be more careful in how we husband our cash.”

The NCB executive continued: “I have a real story for you – take a look at how we integrated Guardian and our performance from the insurance business. Now that is truly headline making. The media missed it but Ryan Strachan of GraceKennedy Financial Services didn’t.

Strachan, in an analysis missive, writes: “So being Curious George, I started to dig further.

Ryan Strachan

“To my surprise, something in the NCBFG notes goes as follows: ‘The net revenues from insurance activities totaled $42.3 billion, an increase of $19.4 billion or 84 per cent over the prior year. The GHL Group implemented a number of initiatives in its life, health and pensions (LHP) segment of our Trinidad and Jamaica operations. The resultant operational synergies, cost savings and centers of excellence have produced long-term cost savings which have the effect of creating favourable reserve movements contributing to the Group’s improved performance.’

“’The integration of Guardian Holdings (GHL) has been accelerated and the end result is robust cost-savings that caused GHL’s profitability to grow by 131 per cent for the corresponding quarter, and contributed to NCBFG’s 84 per cent increase in ‘net revenues from insurance activities.’ It would seem that things are happening for NCBFG in General Insurance as well, as profitability (operating) jumped from $4.87 billion to $5.82 billion (19.5% increase), which contrasts wildly with General Accident’s 39.04 per cent fall (net profit) reported above. Regardless of specifics, the reality of a fall relative to a rise cannot be overlook or ignored.

“It looks to me like these NCBFG folks are executing a master plan that one would do well to be a part of.

“At $11.00+ EPS, they are undervalued at $80-something and while I cannot tell WHEN one can anticipate a return to $200+, this was an outstanding performance by the insurance segment.

“Bear in mind that this is within the context of sliding fortunes in Wealth Management and Commercial/Retail Banking.

“I have insight into the former, as a practitioner in the business, but I think that is best left with me.

“Needless to say, I think WM profits are driven by Advisory and less so spreads, so make of that what you will.

“Had I not done the work, all of these realities would not have been clear to me at all.
All said, great performance, congrats NCBFG!

“I am watching them very closely from here on in. Next set of numbers will be out in December, and remember they got remittance approval for Lynk so there may be more disruption ahead.”

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