Durrant Pate/ Contributor

Jamaica’s banking system has come in for commendations from international credit ratings agency S&P Global, which is pointing to healthier macroeconomic fundamentals that have laid the foundations for more stable business conditions in the local banking industry.

Citing that improved public finances that support the banking system in times of stress has increased in recent years, although the magnitude and scope of the potential support remains uncertain, S&P says it now regard the government’s capacity to support banks as adequate, leading to an improvement in its Banking Industry Country Risk Assessment (BICRA), which is a rating by S&P that places Jamaica’s banking system into one of ten risk groups with a lower group number indicating a more stable and less risky system. 

In its latest assessment yesterday, giving an upgraded credit rating to NCB Jamaica (NCBJ) and its parent company NCB Financial Group (NCBFG), moving its outlook to positive from stable on its long-term issuer credit ratings scale, S&P cited “the government’s liquidity enhancement mechanisms, such as the deposit insurance scheme and capital buffer requirements, reinforce its lender-of-last-resort capacity. In addition, the government is working to launch a special crisis resolution regime aimed at financial institutions, which could provide timely systemwide support.”

Consistent current account surpluses have supported central bank reserves, allowing orderly movements in the exchange rate, with S&P noting that healthy external balances help mitigate risk of imbalances in the banking industry, arguing that imbalances risks remain intermediate due to banks’ exposure to cyclical economic sectors that might cause some volatility in their growth.

Resilient to external shocks 

According to the credit rating agency, “although the banking sector’s loan portfolio is small and somewhat concentrated by industry, asset quality has been resilient to external shocks like the pandemic and major hurricanes, and we expect this to continue. This resilience is thanks to banks’ conservative lending strategies, active management of credit exposures, and the stable economic conditions over the past few years. Total credit has been growing conservatively at around 10% per year since 2020, and the portfolio is mostly composed of secured lending (about two-thirds of total loans). As a result, we expect the nonperforming loans ratio to remain controlled at 2.4%-2.6% over the next 12 months.”

In addition, improving domestic economic fundamentals could set the basis for more convenient operating conditions for financial institutions in 2026-2027 with S&P noting that “as fundamentals improve–including healthier public finances and external balances, more stable GDP growth, and more supportive employment and inflation levels–they could underpin further banks’ business expansion, healthy growth, and better asset quality and funding conditions. Consequently, we revised Jamaica’s BICRA economic risk trend to positive from stable.”

S&P expect Jamaica’s industry operating framework to continue aligning with international principles, arguing that such “initiatives will take several years to be fully implemented. We expect the industry to maintain stable profits and funding base as long as depositor confidence remains strong amid good economic momentum and banks’ creditworthiness.”

Finance Minister offers congratulations

Finance Minister, Fayval Williams, is among the first to congratulate NCBJ and NCBFG on their rating upgrade. She wrote on her Facebook page: “Congratulations NCBJ and NCBFG on S&P’s revised ratings outlook from stable to positive. S&P noted that the “positive outlook on NCBJ reflects the positive economic trend in Jamaica’s Banking Industry Country Risk Assessment…as well as NCBJ’s strong market position…diversified businesses and consistent revenue generation”

In its assessment, S&P is expecting “NCBJ to maintain its strong market position as the largest bank in Jamaica, along with its diversified businesses and consistent revenue generation. The bank provides a wide range of banking products and services and has focused on fostering the use of digital platforms in the country……we expect the bank to concentrate efforts on enhancing customer experience and cross-selling its products. We expect the bank’s nonperforming assets to remain stable, although somewhat above historical levels, due to some pending corporate cases and its loan portfolio mix. NCBJ’s non-performing assets have remained 3.1% over the past three years compared to 2.5% prior to the pandemic.”

As for the parent company, S&P is expecting the “NCBFG to remain a leading player in the Jamaican financial industry. The group benefits from business and geographic diversification, offering a variety of banking operations through its direct bank subsidiaries, NCBJ and Bermuda-based Clarien Group. Moreover, the group has established insurance operations through its Trinidad and Tobago-based subsidiary, Guardian Holdings, which occupies a leading position in that market and has a significant presence in Jamaica. This helps to stabilise the group’s revenue generation.”

Clarien’s loan portfolio weighs on the group’s asset quality because it has a lower credit quality compared to that of NCBJ. While metrics improved post-pandemic and have remained stable with non-performing loans at 4.1% in 2024, the group’s credit portfolio still has some concentration in sectors more susceptible to economic downturns, such as tourism and construction.