R. Anne Shirley, Gleaner Writer

Major players in the financial sector are now crunching the numbers as they try to determine the impact the latest debt exchange will have on their balance sheets.

Last week, most institutional bond holders, including pension funds, insurance companies and financial institutions refused to comment on the exchange as they spent the time frantically calculating the impact that the lower interest earnings and new, longer maturity schedules will have on their respective portfolios.

With Thursday being the deadline for the offer, the Government is encouraging all bond holders to come on board but there is some disquiet in the financial sector about the possible impact of a second debt swap in three years.

"If we take a simple example of a financial institution that holds, say, J$200 billion in Bank Of Jamaica (BOJ) paper and apply the average two per cent to that portfolio, it is clear that such an institution will suffer a J$4 billion loss of profit in just one year," noted banker Aubyn Hill late last week.

According to Hill, In 2012, the two biggest banks operating in Jamaica made just over J$10 billion in net profits. He noted that with the debt exchange and the recessionary realities facing the country the profit figures of these two banks will take a big hit if they sign up to the programme.

The National Debt Exchange (NDX) offer, which was launched last Tuesday, is intended to save the Government approximately $17 billion per year or around 1.25 per cent of annual Gross Domestic Product (GDP) in interest expense.

Reduce public debt

The NDX is also designed to reduce the overall public debt by around 8 per cent of GDP by the 2019/2020 financial year.

It is an arrangement through which current bond holders will substitute their holdings of certain Government of Jamaica bonds denominated in both Jamaican and US dollars for new benchmark bonds with the same principal amount, but in most cases with longer maturities and lower interest rates.

The majority of the notes will be swapped for par, that is, bond holders will submit a J$100 note and receive a new J$100 note, with no reduction in the principal amount.

Finance Minister Dr Peter Phillips has also assured pensioners, who are holders of local and United States currency bonds, that interest payments due to them on these instruments will not be affected by the implementation of the NDX.

Faced with several enquiries from pensioners, Phillips said that special terms are included in the NDX offer, which would see the pensioners and other retail bond holders also being afforded the opportunity to opt for a special one-year bond, with an interest rate ranging between five and seven per cent.

"So, if you had a Jamaican-dollar bond maturing, or a US-dollar bond maturing, you could elect to receive a new bond at seven per cent for the domestic and five per cent for the US dollar bond.

"These will be among the most attractive bonds available, which will allow pensioners who need to receive their principal, to encash their new bonds at the bank or broker on favourable terms," said Phillips.