CCMB hammered by J$4b of loan delinquencies

Majority of portfolio in arrears

As much as 60 per cent of Capital and Credit Merchant Bank's loan portfolio is in arrears, but CCMB is insisting that it has sufficient asset cover for the billions of dollars that are past due from borrowers and that just below a quarter of the amount was impaired or classified as uncollectable.

At the same time, president Curtis Martin says the bank has hired a debt-recovery specialist to work with delinquents to "rehabilitate" accounts and collect on outstanding balances for the majority of the non-performing loans, or NPLs, and is also selling off assets offered up as collateral.

"We are working with customers in terms of rehabilitation through securing new financing, or by the orderly disposal of assets to pay down balances," said Martin.

"We expect to see, within a 12-month period, a significant paydown of balances in an orderly fashion."

CCMB group, which largely comprises the merchant bank, a unit trust and securities trading subsidiary, has a loan portfolio of J$6.2 billion net of provisions - of which J$3.08 billion was past due at December 2010, and another J$903 million was impaired.

Of the total arrears, J$2.86 billion are either non-performing or impaired.

The bank also wrote off J$101million as bad debt last year, four times the amount written off in 2009.

CCMB is the primary business inside the Capital and Credit Financial Group, chiefly owned by Ryland Campbell, who is its chairman.

Campbell, when asked initially about CCMB's struggling loan portfolio, reacted tersely.

"There are only two FIA licencees remaining, hence the BOJ prudential indicators would be instructive enough on this small sector. Any information which you may require on CCMB's financials can be found in the detailed audited financial statements and the notes which were published," he said.

He did not comment on what was being done to cut losses.

The merchant banking group, however, has tripled its loan-loss reserves, which is a financial institutions assessment of how much it might need to cover losses on its loan portfolio, to J$1 billion in the past year.

The Bank of Jamaica requires "full provisioning of the entire loan amount" in circumstances where "arrears reach 18 months and collateral remains unrealised," said Elise Douet, the director of the Financial Institutions in the BOJ's Supervisory Division.

Some J$1.96 billion of CCMB's portfolio has been in arrears for more than 90 days at December 2010.

Quadrupled

The BOJ, in its December report on the trust and merchant banking sector, also known as FIA licencees, said NPLs had quadrupled in a year to 58.9 per cent of capital, from 14.9 per cent in 2009.

MF&G Trust and Finance Limited, which has a loan portfolio of J$650 million, according to central bank data, said its clients were compliant and up to date on loan repayments.

"MF&G has no construction loans and no non-performing loans," said general manager Pamela Smith, adding that the trust company's audited accounts would be published within two weeks.

The central bank tracks NPLs relative to capital base as one of four measures of capital adequacy, but Douet said deposit-taking legislation "does not establish a limit" for NPLs relative to the total loan portfolio.

However, the law requires appropriate provisions, and the affected credit be "classified as non-accrual and all previously accrued but uncollected interest is required to be reversed from income," she said.

But, she also said that "additional prudential provisioning requirements are applied on a graduated scale, depending on the period of arrearage."

Douet, however, also pointed to the current FIA sector average of 16.8 per cent on another measure, the risk-based capital adequacy ratio, saying it was well above the 10 per cent floor that institutions were required to maintain.

"Note also that the reduction in this ratio from 23.2 per cent in 2009 was primarily due to the exit of one licensee from the FIA licensee sub-sector," said the FIA supervisor, referring to Scotia DBG Merchant Bank which was collapsed into the commercial banking arm of Scotiabank Jamaica.

Still, given MF&G's size - the trust company has assets of about J$1.5 billion - Scotia Merchant's exit from the market in the fourth quarter served to highlight CCMB's worsening position, though the Scotia operation itself was valued at just J$2.8 billion by assets.

The CCMB group has assets of J$39 billion, with the merchant banking business alone accounting for J$23 billion.

The central bank official said the growth in non-performing loans for licensees last year was reflective of a mixture of factors, primarily the combined effect of the reduction in total loan stock and a "significant concentration in lending to the construction sector", which has been in decline since the recession. Other BOJ publications specifically reference declines in hotel construction.

Real estate sector

"The Bank of Jamaica continues to monitor the impact on its licensees of the global financial crisis and its repercussions on the domestic economy, to ensure that adequate capital is maintained in relation to credit and other risk exposures," said Douet. Martin told the Financial Gleaner that the majority of the defaults on CCMB's books are from loans to hotel investors.

"The NPLS are due to the downturn in the hospitality and leisure segment. The increase is, therefore, connected to tourism, not construction," he said.

CCMB's own breakdown of its loan portfolio shows that the majority of the funds are distributed in the construction/land development/real estate sector, amounting to J$2 billion, while tourism/entertainment accounts for just J$301 million.

Martin said tourism accounts for about 50 per cent of CCMB's non-performing loans.

He said CCMB had sufficient assets to cover the underperforming portfolio, and was confident of recovering much of what is owed.

"On a consolidated basis, the relation between the asset value and outstanding balances is in a ratio of 3:1," the CCMB president told the Financial Gleaner.

"We do not expect any significant losses. The value of all collateral is two to three times the value of the non-performing loans," he said, adding that "a number of properties are now on sale."

CCMB group is now a J$39-billion group by assets, reduced from J$43 billion in 2009, while equity in the company, inclusive of the loan-loss reserve, has climbed to J$6.6 billion.

The bank reported flat profits of J$344 million, or 52 cents per share, in 2010.

Avia Collinder contributed to this story.

business@gleanerjm.com