Development Bank of Jamaica (DBJ), which facilitates business through loans and equity financing as well as technical assistance, is projecting lower revenue intake this year, but suggests that loan volumes might still increase as a result of falling interest rates.
The bank's programme revenues have been on a roller-coaster in recent years, but DBJ has been riding the crest to maintain a bottom line that is solidly in the black - except for last year.
In the fiscal period ending March 2013, the bank was hit with a massive net loss of J$2.6 billion after impairment. Were it not for the one-off charge - which was disclosed as a J$2.93-billion write-off on a hotel investment in Finance Ministry documentation - it would have made around J$348 million of profit.
DBJ did not respond directly to requests for comment on the loss, but chose to issue a press release late Thursday.
"These provisions primarily relate to investments made in the late 1990s in the hotel sector and account for J$2,407.4 million; and our provision in Montpelier Citrus Company accounts for the balance," said Managing Director Milverton Reynolds.
The main contributor to the loss was the former Ritz-Carlton hotel property in Montego Bay, "which is being disposed of under powers of sale by the senior lender".
However: "The proceeds will be inadequate to meet the obligations of the junior lenders and equity investors, which included the DBJ, resulting in a loss on preferred equity and loans," the bank said.
The bank projects that its associated companies will contribute losses of J$15 million this fiscal period, but expects to end the year with net profit of just under J$255 million.
The budgeted numbers come with several caveats, the bank notes, particularly the performance of interest rates.
"If interest rates decline below the levels anticipated, the income from term-deposit investments will be negatively affected. Similarly, if interest rates on loans to participating financial institutions decline, this will result in reduced income," the corporate plan notes.
"However, since lending activities generally increase when rates decline, the higher volume of loans granted should offset any unforeseen decline in rates. The reverse is true if interest rates on term deposits or loan rates increase."
Other factors likely to impact earnings, said DBJ, are economic forces such as the stability of the Jamaican dollar and level of inflation during the year; and internally, its own "timely implementation of projects and programmes".
In an abridged version of its corporate plan, which was recently reposted on its website, the bank forecasts gross revenue of J$1.36 billion to include loan interest income of J$840 million, or 60 per cent of revenue in the current fiscal period. Last year, it grossed an estimated J$1.49 billion.
Its term deposits are expected to yield another J$200 million of revenue, while 'other' revenue and foreign-exchange translation gains are budgeted at J$324 million.
DBJ expects to spend J$668 million on its operations this fiscal year ending March 2014, or six per cent more than the previous year.
Its capital budget includes J$221 million for acquisition of fixed assets.
On its core business of loans, DBJ expects to lend J$3.54 billion through various distribution channels.