CariCRIS said this week that it lowered its ratings on National Commercial Bank Jamaica Limited (NCBJ) and its wealth management arm, NCB Capital Markets Limited (NCBCML), the first two entities in its portfolio to face adjustments under an ongoing ratings review.
The agency on November 25 said all 16 entities on its ratings sheet would have been scrutinised as regional and world economic conditions unfold.
Now, CariCRIS says Jamaica's deteriorating economic position has forced a new look at the NCB banking group's prospects.
"The downgrade on these two entities reflects the increased financial and economic difficulty that the weakened global economy poses to Jamaica," said CariCRIS in a statement issued Monday.
"The impact from contagion could be severe on Jamaica because of the challenging macroeconomic conditions that existed prior to the global economic crisis."
Financial contagion
Indeed, CariCRIS had signalled from two weeks ago that the financial contagion was likely to hit Jamaica hardest among regional countries.
NCB, which is owned by Michael Lee Chin and run by Patrick Hylton, made record profit of $8.6 million at year end September 2008, but announced that its results were dampened by a $1.2 billion loss on NCB Capital Market's books, reflecting its subsidiary's exposure to the financial meltdown.
NCB Capital itself made $776 million net profit, but those earnings were half the level of 2007's results, reflecting said the brokerage a $1.23 billion provision against its exposure to Lehman Brothers which collapsed September 15.
Both NCB and its subsidiary trumpeted their strengths - both are major players in their sectors - but CariCRIS was not as concerned about their balance sheet, as it was about Jamaica's.
The country, according to the Port-of-Spain agency, is exposed to "modest and deteriorating international liquidity", while sporting a large current account deficit, and bedevilled by "high inflation, onerous debt burden and stalled economic growth."
Strong market position
CariCRIS itself points out that notwithstanding the downgrade, the ratings on NCBJ "reflect its strong market position in Jamaica as well as its good and improving asset quality and provisioning."
And: "The ratings are also supported by the comfortable capitalisation, high profitability and good diversity in earnings."
NCB is capitalised at $31 billion, NCBCap at $7.4 billion.
But CariCRIS also sees room for improvement within the banking group, saying its funding costs were high and that some tightening was required in its risk management systems.
Working against the wealth arm was the loss of key members of its management team this year, its loss of international credit lines as credit tightened overseas and the squeeze on its liquidity.
"These factors are tempered by the company's robust capital adequacy levels and strong market position as the second largest (based on asset size) securities dealer with the most extensive geographic coverage in Jamaica," said CariCRIS.
"The company leverages on its relationship with its parent, NCBJ, thereby reaping synergistic benefits such as the lowest operating efficiency ratio in the industry. Additionally, NCBCML has a favourable resource profile which is strengthened by an increasing focus on retail clients."
business@gleanerjm.com
National Commercial Bank of Jamaica made record profit of $8.6 billion, not $8.6 million, as was reported in the Financial Gleaner, December 19. We regret the error.