Durrant Pate/Contributor

The high interest rate environment in Jamaica is hurting Sagicor’s investment banking segment, which floundered during the March 2023 quarter.

However, its commercial banking segment was a ‘saving grace,’ producing a net profit of J$496.87 million, which is 28 per cent higher than the prior year. The investment banking segment incurred a net loss of J$70.36 million, a decline against the prior year’s comparative period (J$308.22 million).

The high interest rate environment is being blamed for this tragic performance, resulting in increased funding costs significantly, leading to a decline in net interest margins in the Jamaican operations. On the positive side, the parent company, Sagicor Group Jamaica is reporting that “the segment’s Cayman operation continued on its growth trajectory, recording year over year increases in revenue and net profit.”

Banking revenues growing

Regarding the growing profitability of its commercial banking segment, this growth during the March quarter was aided by a 17 per cent increase in total revenues, primarily due to increases in banking activities through credit card and point-of-sale transactions. Additionally, a 22.7 per cent growth in the segment’s loans portfolio translated to a 23 per cent or J$0.61 billion increase in interest income with new loans written during the period totalling $8.25 billion.

The bank improved its efficiency ratio to 65.35 per cent (2022: 71.06 per cent). Total assets of J$192.15 billion, including loan assets of J$114.22 billion, grew 10.2 per cent over prior year while customer deposits increased by J$13.23 billion against the prior year-end total of J$148.81 billion.

Liquidity and solvency

‘Cash and Cash Equivalents’ for the group at the end of March 2023 stood at J$47.48 billion, an increase from J$32.96 billion as at March 2022. The group’s net cash generated from operating activities of J$0.86 billion included interest received of J$7.35 billion.

The group received J$4.23 billion from customer deposits and securities liabilities, which aided in the funding of the bank’s loan portfolio. Regulatory capital requirements continue to be exceeded across all operating entities.

Solvency requirements for general insurance entities have been amended by the Financial Services Commission (FSC) with the new minimum requirement reduced to 150 per cent

Outlook for remainder of 2023

Elevated interest rates across most major markets are expected to carry over into the second quarter of 2023. However, the rate of growth in inflation is expected to stabilise with the International Monetary Fund (IMF) forecasting that global headline inflation will fall from 8.7 per cent in 2022 to seven per cent in 2023.

The management of the Sagicor Group Jamaica states that “while many indicators point to an improving macroeconomic environment, the lingering war in Ukraine and the recent regional bank failures in the US, suggest that continued volatility is likely and as such, Sagicor maintains its risk-off posture. Locally, the Bank of Jamaica (BOJ) saw improvements this quarter in the inflation rate, decreasing by 3.2 per cent since the start of the year to 6.2 per cent at the end of March.”

The BOJ has kept its policy rate at 7 per cent since November 2022, however, effective April 1, 2023, the cash reserve ratio for deposit-taking institutions (DTIs) was adjusted upward by one per cent in order to reduce the supply of money in circulation.

Sagicor Group says it remains focused on advancing its capital management and liquidity strategies to ensure the company’s financial resilience in these uncertain times.