Durrant Pate/ Contributor

International credit ratings agency S&P Global Ratings has revised upwards its credit rating on 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. 

In addition, S&P has affirmed its long-term ‘BB-‘ and short-term ‘B’ ratings on NCBJ and long-term ‘B-‘ and short-term ‘B’ ratings on NCBFG. The positive outlook on NCBJ reflects the positive economic risk trend in Jamaica’s Banking Industry Country Risk Assessment (BICRA), which assesses risks to banks operating in Jamaica. BICRA 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 arriving at its latest assessment released yesterday, S&P says it “could upgrade the bank (NCBJ) by one notch in the next six to 18 months if good economic momentum in Jamaica translates into better operating conditions for the domestic banking industry, prompting us to revise upward the BICRA anchor. The positive outlook on the bank also considers our expectation that it will sustain its credit fundamentals, with manageable credit and operational losses, adequate funding and liquidity, and commensurate capitalisation to sustain its business plan.”

Upward and downward revision possible

However, the stable outlook could be revised if recent progress on the sovereign’s fundamentals recedes, thus limiting healthier conditions for banks, which would lead us to revise the BICRA economic risk trend to stable. In terms of an upside scenario, the ratings agency acknowledged that “it could raise the long-term rating on NCBJ if we revise the Jamaica BICRA anchor to ‘bb’, while the bank’s intrinsic credit fundamentals remain the same and the sovereign rating remains ‘BB’ or above.”

As for NCBFG, “the positive outlook reflects the positive economic risk trend in Jamaica’s BICRA. We could upgrade the holding company by one notch in the next six to 18 months if good economic momentum in Jamaica translates into better operating conditions for the domestic banking industry, prompting us to revise upward the BICRA anchor. The positive outlook on the holding company also considers our expectation that the group will maintain its credit fundamentals, including diversified and stable revenue sources, good capitalisation at its subsidiaries, and gradually improving consolidated risk-adjusted capital metrics (per our methodology). We also expect the group and its banking subsidiaries will maintain manageable asset quality and operational losses.”

The downside scenario could see the stable outlook revised if recent progress on the sovereign’s fundamentals recedes, thus limiting healthier conditions for financial entities, which would lead us to revise the BICRA economic risk trend to stable. On the flip side, the upside scenario could see the long-term rating on NCBFG raised if the rating is revised on Jamaica’s BICRA anchor to ‘bb’, while the group and holding company’s intrinsic credit fundamentals remain the same.

Improved banking condition

This latest positive rating is due to improved banking industry operating conditions in Jamaica, where last month S&P raised its long-term sovereign rating on Jamaica to ‘BB’ from ‘BB-‘ on consensus about the importance of sustainable public finances, reflected in the large primary fiscal surpluses in recent years. The positive outlook on the sovereign ratings reflects S&P’s expectation that continued primary fiscal surpluses will let the government meet its fiscal responsibility, a low debt target coupled with stronger public finances, implying better government capacity to support the banking system in times of distress. 

As a result, the ratings agency revised upward the industry risk score in its BICRA of Jamaica to ‘7’ from ‘8’. Credit risks in the Jamaican banking sector have been manageable in the aftermath of external shocks. This, along with more stable operating conditions in the banking sector, led us to revise the economic risk trend in Jamaica’s BICRA to positive from stable. 

S&P points to the support across political parties and many economic sectors for a fiscal policy focused on debt reduction, suggesting broad policy consensus that has become embedded in Jamaica’s political culture and in its governing institutions over the past decade saying it believes the reelected administration will remain committed to its legislatively enshrined debt-to-GDP ceiling (60%) during its third consecutive term in office.

Following two consecutive years of current account surpluses averaging 2.9% of GDP, fueled by strong tourism receipts and high remittances, Jamaica is likely to maintain surpluses over the next several years. 

The current account surpluses have supported central bank reserves, while the financial sector external assets are stronger and external debt is steady. On the back of improved government capacity to respond to weather-related shocks, the recent decline in violent crime, and the greater independence of the Bank of Jamaica, S&P expects growth to rebound in 2025, with real GDP expanding by 2%. S&P is anticipating growth will return to its long-term average of 1%-2% annually by 2026-2028.