Jamaican banks hold big foreign assets, heavy debts... But American turmoil won't affect local business, says NCB

Published: Wednesday October 1, 2008

Jamaica's seven commercial banks hold assets amounting to some $57 billion in cash and investments in foreign financial institutions, accounting for just over a tenth of the half a trillion dollars of total assets commanded by the sector.

Close to half of all foreign assets is held by National Com-mercial Bank (NCB).

But the bank's senior executives said yesterday that the sinking financial markets in the United States were unlikely to have any real impact on banking business here, nor were its foreign holdings at risk, a day after a plan to bail out American firms was thrown out by lawmakers.

NCB's Foreign assets

NCB, up to June 30, had cash and bank balances of $13.7 billion in overseas banks and investment securities of $12.5 billion for a total of $26 billion.

The Michael Lee Chin-owned bank's foreign assets represents less than 13 per cent of its total assets of $203.6 billion according to central bank industry data.

Yesterday, NCB said these were mostly medium to long-term holdings and that its exposure to the downturn in the US markets was limited.

"The greater part of this represents medium to long-term funding arrangements, which are not impacted by the day-to-day market volatility being experienced in the US," NCB deputy group managing director, Dennis Cohen, told Wednesday Business.

"Of the balance, the majority is due to European-based financial institutions."

NCB is the country's largest bank by assets, but it is the second most profitable.

BNS' Foreign assets

Its chief rival, Bank of Nova Scotia Jamaica whose total assets top $171 billion, also has exposure to the foreign markets - with $19.5 billion in cash and bank balances and $195.5 million of securities.

The two together command 80 per cent of foreign held assets.

Scotiabank president William Clarke had not responded to requests for comment up to press time, but BNS' foreign assets as a ratio of total assets is less than NCB's at 11 per cent.

On the liability side, BNS owes $5.3 billion to overseas players.

NCB owes $37 billion, accounting for more than half of the $73.2 billion that Jamaica's commercial banks owed foreign firms at June 30.

Yesterday, there were new reports that American banks were tightening up on credit - virtually freezing loans (see related story on Page C9) - and that lenders were demanding increasingly higher rates in inter-bank trading to unlock their cash for lending.

Here in Jamaica, Finance Minister Audley Shaw acknow-ledged that unfolding events have made borrowing more expensive, but suggested he would continue to hunt for credit wherever it is cheapest, referring to both the domestic markets and donor institutions.

"We will have more challenges on the international capital markets to raise funds with relatively lower interest rates as we want to raise those funds," Shaw told a pension seminar hosted yesterday by the Private Sector Organisation of Jamaica and Prime Asset Management Limited at the Pegasus hotel in Kingston. "If I stopped borrowing like that, the country would grind to a halt. But what I have to do is borrow more prudently and from windows that can give me the money at half the price that I can get from elsewhere."

Assurances

Cohen said NCB did not expect the bailout turmoil and credit crunch overseas to affect its business here in Jamaica.

"We don't expect that our lending activities will be impacted," he said.

Jamaica's loan market is valued at $216 billion, accounting for 41 per cent of the sector's $530.6 billion in assets.

Similar assurances have also come from Shaw who says his financial team is on top of the situation, and continues to monitor developments in major financial centres. For now, he says, there is no need to be concerned.


Source: Jamaica Gleaner
http://www.jamaica-gleaner.com/gleaner/20081001/business/business3.html