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34% drop in NCB’s first quarter profits

Flat revenues compounded by higher expenses characterised National Commercial Bank (NCB) Financial Group’s first quarter performance for 2021, which saw a big drop in profits of 34 per cent for the period ended December 31, 2020.

Jamaica’s biggest banking group saw its net interest income decreased by 1 per cent to total $13.82 billion coming from the $13.93 billion posted for the same period in 2019. In its latest quarterly report NCB reported that, “the group’s performance for the period declined on account of relatively flat revenues coupled with a 9 per cent increase in operating expenses. These factors led to a 17 per cent or $1.7 billion decrease in operating profits to $8.2 billion for the quarter.”

Net interest income for the first three months closed at $20.84 billion, 5 per cent above the $19.81 billion reported for the corresponding period in December 2019. Interest expense year over year rose 20 per cent to close at $7.03 billion coming from $5.88 billion in 2019.

Net fees and commission income amounted to $5.87 billion, which was an 8 per cent decline when compared to 2019’s figure of $6.41 billion. According to NCB financial group, “This was primarily as a result of the reduced transaction volumes in our payments services business segment stemming from the general economic downturn and our continued encouragement of the use of lower cost self-service and digital options.”

BAD OUT-TURN IN SEVERAL AREAS

Fee and commission income was down to $6.99 billon coming from $7.68 billion in 2019, while fee and commission expense was also down to $1.11 billon coming from 2019 when the company posted $1.26 billion. The news was also bad when it came to dividend income, which decreased by 17 per cent to $576.80 million coming from $693.38 million in 2019.

Other operating income was equally down by 18 per cent to $685.76 million, while credit impairment losses fell 26 per cent to $1.17 billion in contrast to $1.57 billion recorded for 2019. On the positive side, the group’s gain on foreign currency and investment activities rose 9 per cent to $5.41 billion compared to the $4.98 billion reported in 2019.

The management of the banking group highlighted that, “the reductions in revenues were partially offset by improved gains from foreign currency and investment activities due to improving fixed income and equity market conditions”. Net results from insurance activities, for the three months ended December 31, 2020, increased 7 per cent to $8.60 billion coming from $8 billion in 2019.

There were improvements in the life, health and pension segment’s premium income as well as growth in the property and casualty insurance business, mainly in the Dutch Caribbean. Insurance premium income rose 8 per cent to $36.44 billion, while reinsurance commission income advanced 83 per cent to $3.56 billion.

Insurance premium ceded to insurers amounted to $12.18 billion as compared to 2019 when the amount was $9.93 million. Commission and other selling expenses surged to $4.96 billion compared to $4.52 billion in 2019.

As such, net operating income amounted to $33.78 billion for the three months ended December 31, 2020 compared to $33.29 billion booked the prior corresponding period.

NINE PER CENT JUMP IN OPERATING EXPENSES

Total operating expenses for the first quarter amounted to $25.56 billion, an increase of 9 per cent compared to the $23.35 billion reported for the three months ended December 31, 2019. According to management, “staff costs, the single largest operating expense of the group, was the main contributor to the increase, primarily due to the annual increases in salaries, wages and allowances, coupled with incentive payments within the current period related to the prior financial year”.

The expenses are as follows:

• Staff costs increased 16 per cent to $12.32 billion relative to $10.65 billion in 2019.

• Other operating expenses fell by 1 per cent to $10.54 billion (2019: $10.62 billion).

• Depreciation and amortisation grew 15 per cent to $2.29 billion (2019: $1.99 billion).

• Finance cost grew 391 per cent to $416.41 million (2019: $84.79 million).

Consequently, operating profit decreased 17 per cent to total $8.22 billion coming from $9.95 billion in 2019. Profit before taxation decreased 16 per cent to $8.15 billion relative to $9.74 billion in 2019.

Following taxation of $2.30 billion, the net profit for the three months ended December 31, 2020 totalled $5.85 billion, a 25 per cent decrease compared to $7.77 billion for the corresponding period of 2019. Net profit attributable to shareholders for the quarter ended December 31, 2020 closed at $3.92 billion relative to $5.90 billion in 2019.

Earnings per share (EPS) for the three-month period totalled $1.59 relative to $2.39 booked in 2019. The trailing twelve-month EPS amounted to $6.93. NCB stock price closed the trading period at a price of $137.31 on February 4, 2021 with a corresponding price-to-earnings (P/E) ratio of 19.80 times.