NCB profit under pressure as margins tighten, asset prices fall

NCB Financial Group’s profits fell 34 per cent in the December quarter, which Deputy CEO and group head of finance Dennis Cohen attributed to a fall-off in asset prices and compressed margins as revenues slowed.

NCB Financial shed nearly $2 billion of earnings, relative to the year-prior period, as a result. It made $5.85 billion in profit for the December 2020 quarter, $3.9 billion or $1.66 per share of which was attributable to shareholders.

“A big part of the reduction that is noted is in fact a result of reductions in spreads in the market. In addition, we’ve also been severely affected by a fall-off in asset prices,” Cohen said, as he fielded questions at the financial group’s annual general meeting on Friday.

NCB Financial’s interest expenses exceeded interest income by around $100 million, while bank fees declined by more than half-billion dollars to $5.87 billion for the quarter ending December, leading to tighter margins. Bank expenses, driven mainly by a $1.7 billion spike in staff costs, also rose by nine per cent to $25.6 billion, further pressuring earnings.

Cohen said the banking group deciding against staff retrenchment, even as some operational costs increased.

Still, the Jamaican company, whose operations span several corners of the region through subsidiaries such as Guardian Holdings Limited, closed the quarter flush with cash of $189 billion, up from $138 billion a year ago.

Its cash pile notwithstanding, NCB Financial again opted not to pay a quarterly dividend, although it has the option of making distributions to owners with less than one per cent holdings, as a compromise with central bank guidance on safeguarding capital. Prior to the pandemic, the bank was paying dividend of $1 per share per quarter, totalling more than $2 billion of distributions in each period.

Relative to December 2019, NCB Financial's assets climbed 12 per cent at the No. 1 banking conglomerate. But the value of the group’s investment securities, though tracking with the December 2019 figure, declined relative to September 2020 by around $70 billion, and was the primary drag on assets. Loans grew by $18 billion in the same three-month period, but, overall, total assets declined by a small amount, from $1.8 trillion in September to $1.797 trillion at the end of December 2020.

The NCBFG stock closed at $137 on Friday, having sustained declines from nearly $150 per share since last November.

At Friday’s AGM, Group President & CEO Patrick Hylton asked investors to keep faith with the financial group, saying its performance had to be viewed against the backdrop of the ongoing COVID-19 pandemic. NCB has accelerated its digitisation programme in answer to the pandemic, and has 62 per cent of the staff on a work-from-home programme, he said.

Hylton also assured shareholders that despite the fall in profit, the banking group remains on track to meet its five-year targets in 2024.

neville.graham@gleanerjm.com