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NCB forex sales top US$1.4b as dollar slides

Published:Friday | February 1, 2013 | 12:00 AM

Steven Jackson, Business Reporter

National Commercial Bank Jamaica (NCB) sold more than US$1 billion of foreign currency to clients in its financial year, volumes that created new market share for the institution, the bank disclosed to shareholders.

Some of the business was driven by uncertainty in the forex market, which NCB expects to continue until Jamaica signs off on a bailout deal with the International Monetary Fund (IMF).

"The bank provided US$1.4 billion in liquidity to its customers and captured a market share of 14.55 per cent during the financial year," NCB said in its newly released annual report for 2012.

"Resulting from the challenges experienced in the foreign-exchange market we provided hedging solutions for some of our corporate customers," the bank said.

The disclosure comes amid rising conflict between the bank, which is Jamaica's largest, and cambio operators, who are its rivals in the foreign-exchange market.

Cambio operators, who estimate that they command about 43 per cent of the forex market, is now fighting a policy change at NCB which has cut off all foreign-exchange related business with them.

It's the second bank to go that route, the first being RBC Royal Bank Jamaica in 2011.

No justification

NCB explains its shift as related to pressure from its correspondent banking partners overseas seeking to remain compliant with risk and anti-money laundering rules, but cambios have countered that they are heavily regulated by Nethersole Place and that there are no red flags to justify the move.

The Bank of Jamaica (BOJ) is mediating but has already signalled it may not be able to sway the bank.

NCB's revela-tion on its foreign-exchange activity offers an insight into the magnitude of foreign-exchange trading undertaken by the banking group - which also acknowledged late last year that it had put restrictions on the amount of hard currency that customers could acquire because of demand and supply pressures.

The value of the Jamaican dollar has been falling consistently since last year as the BOJ's reserves diminish, and this week began trading above J$94 per US dollar.

BOJ's reserves are expected to be substantially replenished only if an IMF deal emerges.

Lost value

NCB did not respond to queries up to press time on how it built up its new market share and exactly what hedging advice it offered.

The Jamaican dollar lost 7.3 per cent of its value against its US counterpart in the 2012 calendar year. The local currency usually depreciates about four per cent per year but tends to increase pace following elections.

Market experts expect normality to return with an IMF agreement, which would result in the influx of foreign exchange and unlocked loans from multilaterals.

"The uncertainties relating to the IMF negotiations are also expected to linger until an agreement is signed. The minister of finance has indicated that negotiations are proceeding in accordance with the timetable originally set out, and discussions related to the contents of a draft letter of intent are being had. In the interim, consumer spending is expected to remain weak, further weighing on economic activity," said NCB in its annual report. "A turnaround in local conditions is hinged on continued improvement in the US and other major trading partners. In addition to this, an agreement with the IMF will go a far way in restoring confidence and will facilitate access to credit from multilateral organisations which can be used to undertake activities aimed at improving economic activity."

The bank noted that the Government has taken steps to improve primary surplus balances, that is, its non-debt related accounts, this fiscal year by implementing initiatives aimed at improving revenue receipts.

"Despite these measures, subdued economic activity will mean that revenues are likely to fall behind budget, putting the fiscal deficit target at risk. At the same time, inflationary impulses are expected to increase given the depreciation in the local currency and the expected increase in food prices," NCB said.

NCB earned J$10 billion net profit in its financial year ending September 2012, which represented a 28 per cent decline due to the 220 per cent rise in its provision for credit losses. However, its assets grew to J$379 billion, while equity increased seven per cent to J$66.3 billion with an average return on equity of 15.6 per cent.