NCB hits half-trillion dollar mark: To pay $1.1b in dividends
The complex interaction of growing assets, new asset taxes and the application of new accounting rules resulted in a reduction in first-quarter profit for National Commercial Bank Jamaica (NCB), according to the banking group's finance head.
While assets reached the $500 billion mark during the period, the new rules dictated that some $992 million in asset tax charges be taken all at once during the quarter ended - and not on an accrual basis.
This charge, combined with increased investment in payment to consultants for strategic planning and investment in build out in card services and other segments resulted in profit sliding 15 per cent to $2.13 billion at December 2014. The bank made $2.5 billion for the comparative first quarter ending December 2013.
NCB will pay interim dividend of 45 cents per share on February 20, totalling $1.11 billion, based on the first-quarter results.
The banking group said last Friday that it adopted the International Financial Reporting Interpretation Committee (IFRIC) 21, which provides guidance on when to recognise a government-imposed levy.
IFRIC 21 "changed the treatment of our asset tax. We are no longer including asset tax in each quarterly financial statement, but must account for it one time, at the point it falls due," said group finance head and deputy managing director, Dennis Cohen.
"Asset tax is based on the total assets of the institution, so for the bank and NCB Capital Markets - our two largest entities - this tax falls due on October 1, and so the first quarter reflects the entire year's charge. Accordingly, the next three quarters will not reflect a charge for asset tax for these two entities," he said.
The basic asset tax also reflects
an increase quarter over quarter following the implementation by the Government of Jamaica of new charges.
For regulated companies - overseen by either the Bank of Jamaica or the Financial Services Commission - the rate almost doubled from 0.14 per cent to 0.25 per cent of the value of the assets.
Cohen said that normalised profits, without the new tax treatment, would have been $2.7 billion, representing just three per cent less than the $2.8 billion normalised profit for the comparative quarter.
Patrick Hylton, NCB's group managing director, said normalised profit showed good performance in the context of an economy that reflects good macroeconomic indicators, but in which the group's personal and business clients were facing challenges.
He highlighted the bank's investment in "new areas of opportunity", including card services, but declined to provide further details.
The tax charge also affected key performance metrics, according to Cohen. Earnings per share also slid 15 per cent to $0.87 for the quarter. Return on average assets fell to 1.7 per cent from 2.2 per cent, and return on average equity slid from 13.8 per cent to 10.4 per cent.
NCB's loan book at $157 billion was half-billion thinner relative to its September 2014 value, but was up by more than $8 billion when compared to December 2013.
Total assets were just thousands shy of $500 billion. Total equity of $81.9 billion increased by 12 per cent or $8.6 billion year on year, but was close to flat relative to September.
For the period, NCB grew fee and commission income by $465 million or 22 per cent, and made gains from foreign currency and investing activities, which increased by $861 million. Net interest income ticked up by two per cent due mainly, the bank said, to growth in net loans, advances and investment security portfolios.
In its report on developments within the quarter, NCB also noted that its investment subsidiary, NCB Capital Markets Limited, had added three new unit trust products under a US dollar portfolio. The three are: xM Fund; xB Fund; and iB Fund, which is USD-indexed.
NCB said unit buyers can start their investments with US$100 per month.
With the launch of the three products, the NCBCapFunds now comprises six funds.
Headline performers within the commercial banking group for the December quarter included corporate banking, whose operating profit improved 83 per cent to $237 million; and treasury and correspondent banking, which grew its operating profit by 57 per cent to $982 million.
Profit fell for the wealth, asset management or investment banking segment by five per cent or $37 million to $645 million; while general insurance also saw a decline of 13 per cent or $47 million to $307 million, while payment services dropped by 72 per cent or $441 million to $172 million in the quarter.