Patrick Hylton, group managing director of National Commercial Bank, says he is targeting loan growth but from a prudent stance. - File

Ashford W Meikle, Business Reporter

Patrick Hylton is on a crusade for new loans but, given National Commercial Bank's distressed history, has defined the hunt according to the conservative banker's code.

"As you know, we have to grow the loan portfolio prudently," said Hylton, NCB's president, in a Financial Gleaner interview.

"We have to make good loans; that is the important balance. We can't go out there, as in the past, and make loans and then you can't collect them."

The latter comment was an apparent reference to NCB's rescue by government during the financial sector crash, after it became clear the bank was being weighed down by a portfolio of bad loans on which it could not collect.

Hylton, who then as head of the state bail-out agency Finsac, helped negotiate the 2002 sale of NCB to his current boss Michael Lee Chin, says credit and risk management processes now in place should avoid a repeat of history.

The figures suggest that Hylton and his team are keeping a lid on risky lending.

Bad debt

There has been a decline in the bank's allowance for bad debt, with the aggregate of non-performing loans amounting to $1.7 billion or 3.5 per cent of gross loans compared to 4.0 per cent at March 2006.

Hylton attributes the result to better trained staff as well as stricter loan monitoring.

"We are focused on the whole training and development of our people so you get the benefit of both a more rigorous and informed collection process and underwriting assessment," he said.

The number two bank's loan portfolio currently stands at $49 billion - approximately 25 per cent or $10 billion of which was added over its six-month period to March 31 - but that business segment continues to be outpaced by securities investments, a relatively safer vehicle.

Central bank figures indicate that NCB has about 29 per cent of the loan market, compared to the 39 per cent held by chief rival Scotiabank Jamaica.

Total interest income from loans increased by just five per cent during the March quarter, but Hylton said it was a fair performance for NCB given declining interest yields.

"A five per cent growth, quarter over quarter, is not low for a loan portfolio," he said. "When you look at interest income, you have to bear in mind that the interest rate environment has changed significantly."

That change, however, has barely brushed commercial bank lending.

In a year, benchmark interest rates have fallen one and a half points to a low of 11.65 per cent but the latest six-month T-Bill auction for May returned a yield of 11.96 per cent.

However, loan rates offered by the banks have been far less responsive in the past year, tracking on average at just under 22 per cent to February, notwithstanding both private sector lobby and proddings by the Finance Minister Dr Omar Davies for cheaper credit.

Profit increased

Between October and March, NCB's net profit increased by 32 per cent, to $3.2 billion on the back of a 18 per cent increase in revenues of almost $17 billion.

Its net interest income from loans grew to almost $3.9 billion, a seven per cent growth, matched against the $3.6 billion earned in the comparative period last year.

However, its income from loans still lags behind revenue earned from securities — which grew by 12 per cent during the review period.

The mix is not entirely to .20 liking.

"I think our loan portfolio is growing nicely, but our deposit raising efforts are also growing very nicely and, in fact, we are increasing the supply of liquidity that we have available," he said. "Of course, in the long term what we want to do is to grow loans more than we want to grow securities."

With products like Payroll Plus and its targeting of car buyers, NCB's consumer loans have performed more vibrantly than corporate credit. Hylton's explanation for the lag is the turnover period for tying the bow on financing deals.

"Our retail loan portfolio has been growing rapidly," said the banker. "We have not been growing as rapidly on the corporate side, but those are deals that take some time to come to fruition."

ashford.meikle@gleanerjm.com