Fe­lix Pereira

To­day, we high­light the half-year re­sults of two banks.Na­tion­al Com­mer­cial Bank of Ja­maica Ltd­For the six months end­ed March 2013, NCBJ re­port­ed high­er rev­enue un­der al­most all ma­jor head­ings, how­ev­er, the neg­a­tive im­pact of the Gov­ern­ment of Ja­maica's debt ex­change pro­gramme (NDX) in the sec­ond quar­ter, pulled down prof­its at both the op­er­at­ing and net lev­els.

Rev­enues

Net loan bal­ances grew from J$112 bil­lion as at last Sep­tem­ber to J$128.8 bil­lion at the end of March 2013. This 15 per cent growth helped gen­er­ate an ad­di­tion­al J$1.28 bil­lion in in­ter­est in­come for the first six months, which closed at J$16.33 bil­lion (2012: J$15.05 bil­lion).On the oth­er hand, cus­tomer de­posits moved from J$162.9 bil­lion as at last Sep­tem­ber to J$171.2 bil­lion at the close of busi­ness in March 2013. This 5.1 per cent in­crease re­sult­ed in a 5.3 per cent growth in in­ter­est ex­pense, which reached $4.54 bil­lion from last year's J$4.32 bil­lion.Over­all, net in­ter­est in­come came in at J$11.79 bil­lion from the com­par­a­tive re­sult of J$10.74 bil­lion record­ed for the six months end­ing March 2012; this rep­re­sents a healthy in­crease of 9.8 per cent. While the bulk of this change re­lat­ed to in­creased loan dis­burse­ments, growth in in­vest­ments al­so con­tributed to the re­sult.Net fee and com­mis­sion in­come rose from J$3.52 bil­lion in 2012 to J$3.92 bil­lion in the 2013 pe­ri­od or by 11.6 per cent. This im­prove­ment was at­trib­uted to high­er loan trans­ac­tions but more par­tic­u­lar­ly to in­creased card trans­ac­tion vol­umes.

The gain on for­eign cur­ren­cy and in­vest­ment ac­tiv­i­ties de­clined by a huge 97.2 per cent, or from J$2.4 bil­lion last year to a very small J$67.6 mil­lion in the 2013 half-year. This con­trac­tion was pri­mar­i­ly at­trib­uted to the neg­a­tive ef­fects to the bank as a re­sult of it ex­chang­ing an ag­gre­gate of J$125 bil­lion in debt (J$118 bil­lion pub­lic and J$7 bil­lion in pri­vate debt) for which it re­ceived low­er coupon rates and longer ma­tu­ri­ties.NCBJ record­ed a no­table in­crease in pre­mi­um in­come, which came in at J$1.77 bil­lion from the com­par­a­tive 2012 fig­ure of J$1.02 bil­lion. J$910 mil­lion of this in­crease was due to gen­er­al in­sur­ance con­tracts, ob­tained from the pur­chase of Ad­van­tage Gen­er­al In­sur­ance Com­pa­ny Lim­it­ed. An­oth­er sig­nif­i­cant change was the de­cline in the pre­mi­ums from an­nu­ity con­tracts, which fell from J$660 mil­lion in the 2012 pe­ri­od to J$420.9 mil­lion in the cur­rent half-year.

On the oth­er hand, life in­sur­ance pre­mi­ums rose by more than 21 per cent to J$437.6 mil­lion from last pe­ri­od's J$361.3 mil­lion.

The net ef­fects of these changes saw to­tal in­come for the first six months of 2013 of J$17.76 bil­lion; this rep­re­sents a minute de­cline from the J$17.79 bil­lion record­ed for the 2012 com­par­a­tive pe­ri­od.

Ex­pens­es

To­tal staff costs for the 2013 pe­ri­od were J$5.59 bil­lion and rep­re­sent­ed a 4.9 per cent in­crease over the J$5.33 bil­lion record­ed for 2012. On the oth­er hand, pro­vi­sion for cred­it loss­es saw a wel­come fall by J$470 mil­lion, or from J$1.527 bil­lion last year to J$1.057 bil­lion in the cur­rent pe­ri­od. In the 2012 pe­ri­od, there was a huge pro­vi­sion of J$926 mil­lion re­lat­ing to a sin­gle ex­po­sure.Oth­er op­er­at­ing ex­pens­es rose by J$990 mil­lion to J$5.33 bil­lion from last half-year's J$4.34 bil­lion. The pri­ma­ry move­ment was re­lat­ed to the ac­qui­si­tion of Ad­van­tage Gen­er­al In­sur­ance Com­pa­ny Lim­it­ed, which in­clud­ed in­sur­ance ben­e­fits and re­serv­ing ex­pens­es. In ad­di­tion, the pur­chas­es of new in­for­ma­tion tech­nol­o­gy equip­ment pushed up de­pre­ci­a­tion and amor­ti­sa­tion costs by an­oth­er J$179 mil­lion.

These changes re­sult­ed in to­tal op­er­at­ing ex­pens­es mov­ing from J$11.88 bil­lion in 2012 to J$12.53 bil­lion in the six months to March 2013. Sub­se­quent­ly, op­er­at­ing prof­it de­clined to J$5.24 bil­lion from last pe­ri­od's J$5.91 bil­lion. De­spite a high­er share of as­so­ciates' prof­its and a low­er tax charge, the net prof­it at­trib­ut­able to share­hold­ers closed at J$4.53 bil­lion, down by 5.1 per cent from last pe­ri­od's J$4.77 bil­lion.This prof­it trans­lates in­to cur­rent earn­ings per share of J$1.84 ver­sus J$1.93 for the 2012 com­par­a­tive pe­ri­od. In May 2013, an in­ter­im div­i­dend of J$0.16 will be paid. On the Ja­maican Stock Ex­change the price was re­cent­ly quot­ed at J$18.23 per share, while on the Trinidad Stock Ex­change one NCBJ share could be bought for TT$1.20 (ap­prox­i­mate­ly J$18.60).A sig­nif­i­cant risk for the Trinidad-based in­vestor would be ac­cess­ing the like­li­hood of the Ja­maican dol­lar fur­ther de­clin­ing from its cur­rent lev­el of about J$100.00 to US$1.00.

Seg­ment per­for­mance

Re­tail and SME (small and medi­um en­ter­pris­es) is the largest seg­ment in term of rev­enue. For the 2013 half-year, to­tal op­er­at­ing in­come came in at J$7.18 bil­lion, which was 10.1 per cent more than the J$6.52 bil­lion de­liv­ered in 2012. Mean­while, op­er­at­ing prof­it was J$342.3 mil­lion, or 11.2 per cent greater than 2012's re­sult of J$307.9 mil­lion.For 2013, pay­ment ser­vices de­liv­ered op­er­at­ing in­come of J$2.31 bil­lion and op­er­at­ing prof­it of J$985 mil­lion. This com­pares with their 2012 re­sults of op­er­at­ing in­come of J$1.85 bil­lion and op­er­at­ing prof­it of J$893 mil­lion. While in­come im­proved by a mar­gin of 24.5 per cent, prof­it rose by on­ly 10.3 per cent.Cor­po­rate bank­ing saw a de­cline in op­er­at­ing in­come ac­com­pa­nied by an in­crease in op­er­at­ing prof­it.Op­er­at­ing in­come fell to J$1.09 bil­lion from 2012's J$1.37 bil­lion. Mean­while, op­er­at­ing prof­it im­proved from a loss of J$60.7 mil­lion to a prof­it of J$531.4 mil­lion. We re­call that in 2012 this unit had a pro­vi­sion for cred­it loss of J$926 mil­lion. The ab­sence of this pro­vi­sion en­abled it to re­turn to prof­it in the cur­rent pe­ri­od.The trea­sury and cor­re­spon­dent bank­ing unit saw huge de­clines at both the in­come and prof­it lev­els.

Op­er­at­ing in­come con­tract­ed to J$1.06 bil­lion from last pe­ri­od's J$2.46 bil­lion while op­er­at­ing prof­it was com­pressed down to J$519.4 mil­lion from 2012's J$1.99 bil­lion. The debt ex­change pro­gramme was the chief cul­prit that con­tributed to these low­er re­sults. For ex­am­ple, op­er­at­ing in­come was re­duced by J$865.8 mil­lion in 2013 by loss­es on for­eign cur­ren­cies and in­vest­ments; in 2012, the fig­ure for this line item was a pos­i­tive J$1.07 bil­lionA small de­cline in op­er­at­ing in­come was in­suf­fi­cient to pre­vent the wealth man­age­ment di­vi­sion from record­ing a mod­est im­prove­ment in op­er­at­ing prof­it.Op­er­at­ing in­come slowed from J$2.95 bil­lion in 2012 to J$2.84 bil­lion in the cur­rent half-year. Even so, op­er­at­ing prof­it rose mod­est­ly to J$2.29 bil­lion from 2012's J$2.16 bil­lion. High­er net in­ter­est in­come and div­i­dends ac­count­ed for this re­sult.New­ly ac­quired Ad­van­tage Gen­er­al In­sur­ance Com­pa­ny Ltd is now in­clud­ed un­der the In­sur­ance & Pen­sion Fund Man­age­ment di­vi­sion. AG­IL's in­clu­sion did much to lift to­tal op­er­at­ing in­come, which rose to J$3.44 bil­lion from 2012's J$2.76 bil­lion.How­ev­er, AG­IL's re­sults were in­suf­fi­cient to boost op­er­at­ing prof­it, which fell to J$1.4 bil­lion from the J$1.46 bil­lion re­port­ed for 2012. Re­duced gains on for­eign cur­ren­cy and in­vest­ment ac­tiv­i­ties com­bined with high­er oth­er op­er­at­ing ex­pens­es in the cur­rent pe­ri­od re­strained prof­it growth.

New ac­qui­si­tion

NCBJ's sub­sidiary, NCB Cap­i­tal Mar­kets Ltd pro­pos­es to ac­quire Trinidad-based AIC Fi­nance Ltd from AIC (Bar­ba­dos) td. Ap­proval from reg­u­la­tors for this ac­qui­si­tion is still pend­ing.

Re­pub­lic Bank Ltd

De­spite in­cur­ring im­pair­ment charges of $49 mil­lion, which re­lates to a Gov­ern­ment of Grena­da bond, Re­pub­lic Bank Ltd was able to re­port high­er prof­it at­trib­ut­able to its share­hold­ers for the six months to March 2013.For the first six months of the cur­rent year RBL in­creased its loan port­fo­lio by al­most $1.4 bil­lion to reach $24.7 bil­lion. Its hold­ings of cus­tomers de­posits con­tin­ued to grow as this bal­ance stood at $43.4 bil­lion as at March 2013, up by $3.6 bil­lion from the fig­ure of $39.8 bil­lion as at Sep­tem­ber 2012.These changes trans­lat­ed in­to high­er net in­ter­est in­come, which was record­ed at $1.08 bil­lion for the six-month pe­ri­od and com­pares favourably with the $1.04 bil­lion shown for the 2012 half-year.Oth­er in­come reg­is­tered a 10.8 per cent im­prove­ment, mov­ing from $532 mil­lion in the March 2012 pe­ri­od to al­most $590 mil­lion in the cur­rent pe­ri­od. This brought to­tal in­come for the cur­rent pe­ri­od up to $1.67 bil­lion, rep­re­sent­ing an im­prove­ment of 6.3 per cent over the $1.571 bil­lion re­port­ed for 2012.

Op­er­at­ing ex­pens­es in­creased by 12.1 per cent or, from $794 mil­lion in 2012 to $890 mil­lion in the cur­rent pe­ri­od. The cur­rent fig­ure pre­sum­ably in­cludes the $49 mil­lion re­ferred to ear­li­er. The share of prof­it from as­so­ci­at­ed com­pa­nies de­clined to $3.8 mil­lion from last pe­ri­od's $10.9 mil­lion. These changes re­sult­ed in an op­er­at­ing prof­it for the cur­rent pe­ri­od of $784 mil­lion, rep­re­sent­ing a de­cline of $4.40 mil­lion from the $788.4 mil­lion re­port­ed for the pe­ri­od to March 2012.Af­ter de­duct­ing $45 mil­lion for loan im­pair­ment ex­pens­es, RBL re­port­ed a pre-tax prof­it of $739 mil­lion (2012: $744.4 mil­lion). De­spite mar­gin­al­ly low­er pre-tax in­come, the tax charge has in­creased from $162.5 mil­lion in the last pe­ri­od to $178.3 mil­lion in the cur­rent pe­ri­od. Thus, af­ter tax prof­it de­clined to $560.8 mil­lion from 2012's $581.9 mil­lion.

Here comes the cru­cial change. The prof­it at­trib­ut­able to non-con­trol­ling in­ter­ests falls from $31.8 mil­lion to $8.3 mil­lion in the cur­rent pe­ri­od. This is main­ly be­cause RBL now has al­most full con­trol (99.97 per cent) of its Bar­ba­dos sub­sidiary; this was not the case six or 12 months ago. Mi­nor­i­ty in­ter­ests at the Guyana and Grena­da sub­sidiaries would al­so have af­fect­ed the re­sult. Be­cause of this, prof­it at­trib­ut­able to share­hold­ers now in­creas­es to $552.5 mil­lion from $550.1 mil­lion in the pri­or pe­ri­od. These re­sults trans­late in­to un­changed di­lut­ed earn­ings per share of $3.44.In terms of coun­try per­for­mance, T&T was the leader in both ab­solute and rel­a­tive terms. Op­er­at­ing in­come rose by 9.6 per cent to $1.34 bil­lion from last pe­ri­od's $1.22 bil­lion. Al­so, pre-tax prof­it in T&T in­creased by 6.8 per cent or, from $674 mil­lion for the last pe­ri­od to $720 mil­lion cur­rent­ly.

Re­gion­al per­for­mance

Un­for­tu­nate­ly, the Bar­ba­dos sub­sidiary suf­fered a fall in prof­it by a fac­tor of 28.4 per cent, mov­ing from $67.7 mil­lion in the pri­or pe­ri­od to $48.5 mil­lion in the cur­rent pe­ri­od. Though less pro­nounced than Bar­ba­dos, the Cay­man, Guyana and East­ern Caribbean units de­liv­ered 5.4 per cent less prof­it than for the 2012 pe­ri­od.In dol­lar terms, the prof­it for the cur­rent pe­ri­od was $102.4 mil­lion while it was $118.9 mil­lion for the six months to March 2012. (Ex­pla­na­tions for these de­clines were not im­me­di­ate­ly dis­cernible.)(Fi­nan­cial re­ports (in­clud­ing in­ter­im ones) from Ja­maican and for­eign ju­ris­dic­tions of­fer read­ers a high lev­el of de­tail and ex­plana­to­ry nar­ra­tive that can be used to make in­formed in­vest­ment de­ci­sions. Un­for­tu­nate­ly, es­pe­cial­ly in their in­ter­im re­port­ing, many lo­cal com­pa­nies are ex­ces­sive­ly eco­nom­i­cal with both words and fig­ures. A no­table lo­cal ex­cep­tion is Guardian Hold­ings Ltd.)