NCB positioning for investment schemes fallout, say some analysts

Published: Wednesday August 6, 2008

National Commercial Bank of Jamaica's (NCB) move to increase its provision for credit losses by 140 per cent over the 12 months to June 30 have led some investors to believe the comercial bank is preparing itself for the potential impact of the fall-out of investment schemes.

"It would be prudent [to increase the provision] in order to make sure there are no surprises," said Neilson Rose equity asset manager at Mayberry Investments. "You are definitely going to see some fallout and these alternative investment schemes were used as cashflow."

The provision jumped from $39.1 million to $93.1 million when the June quarter is compared year over year. Year to date that figure increased 102 per cent from $151.3 million to $307 million. NCB increased this provision even though there was a decrease in its non-performing loans as a percentage of total loans-dropping to 2.34 per cent from 2.92 per cent over 12 months.

"Cash Plus has gone down, Olint is suspended. Interest rates are increasing, the stock market is relatively soft. These factors are going to affect people's ability to service these loans," added Rose.

NCB is the latest bank to issue results. BNS results up to April actually show a reduction in provision for credit losses. Six-month results put that provision at $198 million versus $301 million a year ago. However, analysts say that both entities could be affected in coming months.

"It is true that people took out loans which were used to support Olint investments, but whether or not an increase is related to that I don't know at this time." said another investment analyst.

But up to press, NCB was not available for comment. However it did say in its results: "We continue to focus on our loan growth and these efforts have resulted in loan growth of $18.4 billion over the June 2007 period and our net loans to total assets ratio has grown from 21.61 per cent at June 2007 to 25.40 per cent at June 2008.Loans and advances totalled $71.1 billion (net of provision for credit losses) as at 30 June 2008 compared to $52.7 billion as at 30 June 2007.

The aggregate amount of non-performing loans was $1.7 billion and represented 2.34% of the gross loans compared to 2.92% as at 30 June 2007. "


Source:
Steven Jackson
Jamaica Observer
http://www.jamaicaobserver.com/magazines/Business/html/20080805T230000-0500_138709_OBS_NCB_POSITIONING_FOR_INVESTMENT_SCHEMES_FALLOUT__SAY_SOME_ANALYSTS.asp