Citibank offloads Jamaican securities
Citibank NA Jamaica says the near two-third compression of earnings last year was due both to lower interest rates on loans and the offloading of some interest-earning assets held by the bank.
At yearend, securities held for resale agreements were down from $3.5 billion to $2.5 billion, while securities pledged by the bank as collateral for repurchase agreements had a carrying value of nil compared to $781 million at December 2013.
But Citibank continued to dispose of Jamaican dollar assets into January, when it sold other investments to an undisclosed third party for $625 million.
For year ending December 2014, net profit declined to $52.5 million from $145.64 million the year before.
Citi's country officer and managing director of the bank, Peter Moses, said on Monday that challenges faced by the bank were mainly associated with a fall-off in its local currency loan business "partially because of a waned appetite by our prospective obligors for our Jamaican dollar financing".
However, Moses said the financial results published this month do not capture the entirety of Citi's operations.
"We also facilitate US dollar-denominated loan financing to our clients through an affiliate company such that the loan balances reflected in our financials would not necessarily reflect the full picture," he said.
Citibank Jamaica's interest income sank to $490 million from $622 million in 2013, while interest from investment securities fell to $72.35 million from $117.6 million.
Fees and commission income grew from $146 million to $195 million.
Commenting on the compression in interest and investment income, and consequently the reduction in net profit for the bank, Moses said this was attributed to lower interest rates and, by extension, compressed margins, along with "the fact that our interest-earning assets reflected a sharp reduction over the period."
The liquidation led to shrinkage of the bank's asset base, which closed at $16 billion, compared to just over $18 billion in 2013. Citibank Jamaica is the smallest of six commercial banks. It specialises in corporate banking.
In reference to the bank's sale of Jamaican dollar securities in 2014, Moses said these were largely repo holdings that were disposed of in keeping with local market conditions and aligned with the regulatory push to reduce balance sheet risk.
reduce the exposure
The contraction "was mainly a reflection of our strategy to liquidate assets to facilitate the paying down of higher cost deposits", Moses told Wednesday Business. "In addition, GOJ securities were deployed primarily in the repo market ... local regulators have been instituting strategies to reduce the exposure of institutions to the repo market."
He said Citibank had sold other assets, which would be reflected in its 2015 earnings report. The bank's financial report indicates that securities with a fair value of $661.22 million at yearend 2014 were sold to a third party for $625.35 million in January 2015. Moses declined to name the buyer.
The bank closed FY 2014 with zero non-performing loans on a reduced loan book valued at $2.5 billion - down from $3.71 billion at the end of 2013.
The banks "most significant customers" are in distribution and other service sectors and manufacturing and service sectors. Together they accounted for $1.7 billion of all loans at yearend 2014.