Mar 2012 Financial News

Fitch warns about NCB's public exposure

Mar 21, 2012

FITCH Ratings on Monday said it remained concerned about National Commercial Bank's (NCB) high exposure to public sector debt, but it expects the bank's profitability will continue to benefit from cost controls and the growing importance of non-interest income.

The ratings agency affirmed NCB's long-term Issuer Default Rating (IDR) at 'B-', giving the financial institution a stable rating outlook.

"A strong domestic franchise, solid profitability, and adequate capitalisation support the current ratings of NCB," said Fitch in a press statement issued Monday, adding that the bank's ratings "remain constrained by the sovereign's weak credit profile given high exposure to the Jamaican public sector, lending concentrations, as well as a challenging operating environment".

According to Fitch, NCB's investments and loans to the Government and public entities are declining, but those assets still represent a high proportion of the commercial bank's assets — 52 per cent, or 3.1 times its capital base as at September 30, 2011.

The ratings agency said that the high exposure reflected low private sector credit demand, which has not substantially recovered since the recession began in 2007.

"A still high lending concentration, albeit declining, contributes to volatile asset quality indicators as illustrated by the increase in the bank's non-performing loans (NPLs)-to-gross loans ratio to 7.1 per cent at (end of September 2011) from 3.2 per cent (a year earlier)," said Fitch. "Fitch expects concentrations to continue declining as exposure to the retail sector increases.

"Adequate spreads and the growing importance of non-interest income combined with controlled credit and operating costs benefit NCB's profitability and support internal equity generation, trends Fitch expects to continue over the medium term."

Fitch noted that NCB's return on average assets ratio averaged 3.4 per cent over the last four years, which compared favourably to emerging market commercial banks with similar ratings.

It added that solid internal equity generation combined with low dividend distributions and single-digit asset growth boosted the bank's equity-to-assets ratio to 17.4 per cent for the financial year ended September 30, 2011, up from 14.6 per cent in the previous financial year.

"At 36.7 per cent (as at end of September 2011), the bank's Fitch core capital-to-weighted risks ratio is also high relative to peers," it added. "However, in light of important asset concentrations Fitch views NCB's capitalisation as adequate."


Source:
Jamaica Observer
Wednesday March 21, 2012

http://www.jamaicaobserver.com/business/Fitch-warns-about-NCB-s-public-exposure_11080626#ixzz1plH4M14w