Approximately
$2.1 billion worth of loans at National Commercial Bank (NCB) went into
arrears last year -- suggesting that institution was still grappling with
the problems of bad debt that led to the $19.5 million bail-out by the
state one year ago. Chairman
of the banking group, Oliver Clarke, told share holders last week that
more customers continue to experience problems with servicing their loans
even after the bank sold $13 billion in doubtful debts to FINSAC a year ago. Clarke told scores of shareholders at NBC annual
general meeting at Hilton Kingston Hotel that the management was still
working diligently to restore health to the institution. "They
are trying very hard to cut the expenses of operating this organisation,"
Clarke said. NCB's
doubtful debt portfolio is equivalent to roughly 20% of its current
performing loans. Last
year the bank made provision of $1.2 billion for that doubtful debt, a
charge which was a factor in the $1 billion loss reported by the group for
the year ended September 30, 1998. The
group's managing director, Dunbar McFarlane, told the shareholders that
the key factor in the apparent deterioration of the loan portfolio was
last year's change in the rule governing bad debt provision from 180 days
to 90 days. With
the stricter regulation, banks now have to cease booking revenue for loans
which are 90 days past due in payment. According
to McFarlane, despite the increase in the doubtful loan portfolio there
were no plans by the management to approach FINSAC
for additional financial assistance. Moreover,
the management had put systems in place to minimise additional fall-out,
he said. "I
wish to state categorically that NCB has not approached FINSAC to sell any loans or indeed, for any additional financial
assistance," McFarlane said. FINSAC
injection
was through a combination of preference shares, direct equity investment
in the bank and the purchase of bad debt. McFarlane
explained that under the bail-out arrangement "FINSAC Ltd assumed responsibility for the collection and management
of the large loans in the non-performing portfolio sold". This
related to loans of $5 million and over while NCB was responsible for
collecting those loans of below $5 million in face value. With
the FINSAC arrangement, NCB
loan portfolio fell more than half, from $24.8 billion in 1997 to $11
billion in 1998. Income
from loans, fell accordingly, from $6.2 billion in 1997 to $3.5 billion
last year. Income from the FINSAC
bonds replaced the loans as the major source of revenue for the group. It
was, however, he group's performance for the six months to March 31, 1999
which for McFarlane indicated the possibilities for the long-term
profitability of the institution and vindicated FINSAC
intervention and the management's aggressive cost-cutting programme. For
that period the group reported operating profit of $416 million, up from
$117.8 the previous year -- an indication in McFarlane's view of the
soundness of the core operation. "I
certainly, expect to see a continuation of this trend as we move
forward," McFarlane told the shareholders. "We are rebuilding
the institution. We are restructuring the institution." At
the commercial bank, he said, the branches have been cut and the credit
administration has been reformed, he explained. The
profit in the last two quarters would apparently have given McFarlane and
the NCB the confidence to mount a marketing programme to regain customers
lost "during the period of uncertainty". "We
have met and we are continuing to meet with customers in the United
Kingdom," McFarlane said. "We are currently developing a new
marketing thrust aimed at regaining any ground lost to the
competition." It
was as a message reinforced by the chairman Clarke who cited the bank's
$48 billion deposit base as proof that the customers had retained their
confidence in the institution. "In
spite of the difficulties the deposit base did not go down," said
Clarke. "It is a very re-assuring thing." But
shareholders also expressed their concern about the performance of the
bank. Clarke fielded questions from several, who raised questions about
last year's $1 billion loss. Clarke
said a substantial provision for bad debt, insurance and consultants' fees
had contributed to the loss. One
shareholder, Christopher Lue, raised the issue of the breach of the Bank
of Jamaica's restrictions on secured credit. Clarke
said only that the institution hoped to have the outstanding credit
reduced to return the bank's position to within the statutory guideline on
credit. June
30, 1999 We value your feedback
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