COVID-19 presents opportunity to innovate, says NCB boss
CEO of NCB Financial Group, Patrick Hylton
Patrick Hylton, CEO of the NCB Financial Group (NCBFG) indicates that the company is moving aggressively forward with its digital transformation.
Speaking on Friday at an investors’ briefing streamed from Kingston, Hylton said, “We now have the opportunity to leapfrog and bring forward at an accelerated pace many objectives for the digital transformation of our business... circumstances have conspired to require this.”
The company indicated that it was now making more use of digital channels, even while keeping some customer-facing locations open.
The company has already begun to see the effects of the coronavirus (COVID-19) on its operations, with a 100 per cent increase in credit provisions under its banking division and also reductions in investment income.
NCBFG reported a net profit of $13.4 billion for the first six months of the financial year ended March 31, 2020.Net profit attributable to stockholders was $9.6 billion, a 23 per cent or $2.9 billion decline from the prior year.
For the quarter ended March 31, net profit was $5.59 billion compared to $7.8 billion in the similar quarter in 2020.
The company faced increased costs connected with the consolidation of business under Guardian Group, including staff payments in 21 territories, with results also affected by a one-off gain in the 2019 quarter.
The prior year’s results included the one off-gain of $3.3 billion from the disposal of interest in an associate company.
A challenging second quarter
Excluding this gain, net profit would have increased by $408 million or four per cent over the prior year.
Deputy CEO and Group CFO Dennis Cohen described the second quarter as challenging.
He stated, “The pandemic has been far-reaching and adversely affected our financial performance.”
Cohen, noting that there was “unprecedented challenge facing customers,” said the group has been offering moratoriums on principal payments and some transaction fees have been waived.
The results, he said saw a reduction in key metrics including return on assets. The deterioration included higher credit impairment provisions, foreign exchange losses and a decrease in the carrying value of investment securities.
At the same time, there was also a 61 per cent increase in expenses for the group.
Dennis Cohen (left), Group Chief Financial Officer and Deputy CEO of NCB Financial Group and Group CEO Patrick Hylton
Cohen noted that dividend distribution has been suspended as the Bank of Jamaica (BOJ), “believes that in the current climate financial institutions should preserve capital.”
He asserted that the main reason for declining profitability, however was the one-off gain in the similar quarter in 2019 coming from the disposal of assets.
Comments from financials posted on the Jamaica Stock Exchange are that the main areas of company operation impacted so far by the economic downturn were the fair valuation of investment securities, which resulted in losses on investment activities for the quarter and loan provisioning.
Overall, operating revenue grew, with five out of seven segments showing improvement. Net operating income fell to $21.46 billion, down from $33.2 billion in March 2019.
Banking and investment improved to $40 billion, resulting from the increased income-driven from consolidation of Guardian which also resulted in $11 billion uptick in insurance.
As a segment, treasury declined and consumer and commercial banking had a net loss of $275 million.
Staff costs increased by over 70 per cent. Expenses climbed $800 million from negotiated salary increases. Increases were due to the Guardian consolidation, reflecting expansion in 21 territories, according to Cohen.
The financial group meanwhile grew its asset base to $ 1.6 trillion, up 66 per cent over 2019, due to the Guardian consolidation.
However, at the end of March, stockholder equity was down $3 billion year, over year, due to the decline in bond prices, Cohen said.
The group grew deposits to $520 billion, up $41.6 billion or nine per cent, with Cohen noting that individuals might now be preferring to hold cash and near-cash at this time, over investing.
In the question segment, Cohen, who also serves as deputy CEO said that the group continued to be challenged in “measuring the depth and scope of the [COVID-19] crisis.
“The impact, especially on the financial sector, has been immediate. The impact on the stock market was instantaneous. On many other aspects of the economy, we have begun to see a significant fall off. The inter-connectivity of many sectors is clear,” Cohen said.
He said that the general level of caution among investors and consumers has led to a decline in spending, leading to a “clear contraction,” also linked to the lockdown.
He said, “It’s difficult to tell the scope and depth. We have to be continuously monitoring. It clearly is going to depend on one -how quickly Jamaica overcomes the health impact of the pandemic and two - the rate of recovery of major trading partners.
Cohen noted that positive signs include a number of major economies which are now planning for normal activity.
“It’s wait and see, but now we are beginning to see good signs. We believe we have put the governance in place to respond to what is happening.”
He said that while, for the bank, credit provisions significantly increased in March quarter,” we are able to stay in the black. It speaks to our resilience. We remain very optimistic about the prospects of the NCB financial group.”
He admitted, “In the coming quarter we expect further fallout. We anticipate clients will have problems with payments. We should also note that our credit provision charges for March quarter under the commercial bank were well in excess of 100 per cent in the prior quarter. We have begun to factor that along with charges from equities and bond trading.”
Group CEO Hylton said at the briefing that the current conditions were, “an opportunity for innovation. Norms have shifted in a matter of days. There are persons who never before used internet banking who are now working seamlessly with it.
“Our focus right now, despite the environment, is to remain committed to becoming a Caribbean ecosystem. We always welcome and embrace challenges and we see them as an opportunity to excel. We are building our legacy. These difficulties are giving us an opportunity to demonstrate who we are and what we are capable of,” Hylton said.