Tue | Feb 21, 2017

NCB hits half-trillion dollar mark - To pay $1.1b in dividends

Published:Sunday | January 25, 2015 | 12:00 AM

Avia Collinder, Business Reporter

The complex interaction of growing assets, new asset taxes and the application of new accounting rules resulted in a reduction in first-quarter profit for National Commercial Bank Jamaica (NCB), according to the banking group's finance head.

While assets reached the $500 billion mark during the period, the new rules dictated that some $992 million in asset tax charges be taken all at once during the quarter ended - and not on an accrual basis.

This charge, combined with increased investment in payment to consultants for strategic planning and investment in build out in card services and other segments resulted in profit sliding 15 per cent to $2.13 billion at December 2014. The bank made $2.5 billion for the comparative first quarter ending December 2013.

NCB will pay interim dividend of 45 cents per share on February 20, totalling $1.11 billion, based on the first-quarter results.

The banking group said last Friday that it adopted the International Financial Reporting Interpretation Committee (IFRIC) 21, which provides guidance on when to recognise a government-imposed levy.

IFRIC 21 "changed the treatment of our asset tax. We are no longer including asset tax in each quarterly financial statement, but must account for it one time, at the point it falls due," said group finance head and deputy managing director, Dennis Cohen.

"Asset tax is based on the total assets of the institution, so for the bank and NCB Capital Markets - our two largest entities - this tax falls due on October 1, and so the first quarter reflects the entire year's charge. Accordingly, the next three quarters will not reflect a charge for asset tax for these two entities," he said.

The basic asset tax also reflects an increase quarter over quarter following the implementation by the Government of Jamaica of new charges.

For regulated
companies - overseen by either the Bank of Jamaica or the Financial
Services Commission - the rate almost doubled from 0.14 per cent to 0.25
per cent of the value of the assets.

Cohen said that normalised
profits, without the new tax treatment, would have been $2.7 billion,
representing just three per cent less than the $2.8 billion normalised
profit for the comparative quarter.

Patrick Hylton,
NCB's group managing director, said normalised profit showed good
performance in the context of an economy that reflects good
macroeconomic indicators, but in which the group's personal and business
clients were facing challenges.

He highlighted the
bank's investment in "new areas of opportunity", including card
services, but declined to provide further details.

The
tax charge also affected key performance metrics, according to Cohen.
Earnings per share also slid 15 per cent to $0.87 for the quarter.
Return on average assets fell to 1.7 per cent from 2.2 per cent, and
return on average equity slid from 13.8 per cent to 10.4 per
cent.

NCB's loan book at $157 billion was half-billion
thinner relative to its September 2014 value, but was up by more than
$8 billion when compared to December 2013.

Total
assets were just thousands shy of $500 billion. Total equity of $81.9
billion increased by 12 per cent or $8.6 billion year on year, but was
close to flat relative to September.

For the period,
NCB grew fee and commission income by $465 million or 22 per cent, and
made gains from foreign currency and investing activities, which
increased by $861 million. Net interest income ticked up by two per cent
due mainly, the bank said, to growth in net loans, advances and
investment security portfolios.

New unit trust
products

In its report on developments within the
quarter, NCB also noted that its investment subsidiary, NCB Capital
Markets Limited, had added three new unit trust products under a US
dollar portfolio. The three are: xM Fund; xB Fund; and iB Fund, which is
USD-indexed.

NCB said unit buyers can start their
investments with US$100 per month.

With the launch of
the three products, the NCBCapFunds now comprises six
funds.

Headline performers within the commercial
banking group for the December quarter included corporate banking, whose
operating profit improved 83 per cent to $237 million; and treasury and
correspondent banking, which grew its operating profit by 57 per cent
to $982 million.

Profit fell for the wealth, asset
management or investment banking segment by five per cent or $37 million
to $645 million; while general insurance also saw a decline of 13 per
cent or $47 million to $307 million, while payment services dropped by
72 per cent or $441 million to $172 million in the
quarter.

avia.collinder@gleanerjm.com