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HIGHLIGHTS
The period under review marks FINSAC’s second year of operations, during which time it incurred losses of $22.08 Billion. This result compares favourably with the losses of $45.59 Billion incurred in the previous year. FINSAC has an accumulated deficit of $67.67 Billion as of March 31 1999. Total revenues earned during the period increased by $1.1 Billion, representing an increase of 46.2% over the revenues of the previous year. FINSAC’s revenues were generated largely from interest on loans to financial institutions, which contributed 91% of the total. The other revenue sources comprising investment income, deposit interest income and $20.1 Million of IADB funding, contributed the remaining 9% of revenues. General and administrative expenses for the year to March 31,1999 were $376.9 Million (1998- $310.4 Million), an overall increase of 21.4%. Personnel related costs, professional and consulting fees (local and foreign) account for 78.2% of these expenditures, a proportion very similar to the 77.5% in 1998.

INTEREST COST
The Company sustained losses of $16.38 Billion on its operations, a result which has been influenced by the interest charges of $16.6 Billion (1998 - $4.3 Billion) incurred on its long-term loans and advances. The substantial increase in interest costs over the previous year reflects the increased stock of outstanding interest bearing liabilities in the form of FINSAC Notes and Advances from the Bank of Jamaica and the Government of Jamaica. The Company incurs interest on its outstanding liabilities at fixed rates for each loan for a defined period and thereafter at the aggregate of the weighted average yield rate applicable to the latest six month treasury bill tender expressed as a percentage plus 1%. During the year, the Company met its bond interest payment obligations by the issue of further bonds. The face value of these interest bonds was $8.1 Billion (1998 - $456 Million).

OTHER CHARGES
In addition to the operating losses, an additional amount of $2.46 Billion (1998 - $29.61 Billion) was charged off in the year to book estimated diminution in the value of investments in subsidiary and associated companies. The amount also includes the company’s share of the operating losses incurred by its related companies. Consistent with the loss recognition treatment adopted in FINSAC’s first financial year, provisions amounting to $3.23 Billion (1998 - $11.86 Billion) were booked for possible losses on loans to and deposits with, intervened financial institutions.

ASSET COMPOSITION
Total assets of $19.27 Billion at March 31, 1999 represent a 4.8% reduction on the previous year’s asset base. A total of $18.29 Billion, which represents 95% of the company’s asset base, consists of asset holdings arising out of the intervention and rehabilitation processes comprising investments in the form of equity interest in related companies, preference share holdings and loans and advances.

INVESTMENTS
The value of investments before any provisions increased only marginally, by 3.6%, over the values at March 31, 1998. As described more fully in Note 2d (i) and (ii) of the financial statements, the carrying values of these investments were restated. The restatement, effected by provisioning for loan losses and impairment of investment values, results in the write down of investments to 32.3% (34.9% in 1998 ) of their original cost. 

LOANS TO FINANCIAL INSTITUTIONS
Gross loans to financial institutions increased by $2.3 Billion, whilst there was a $457.2 Million reduction in the amount due from one intervened institution (Workers Bank). Aggregate outstanding loans were therefore $17.2 Billion at the end of the period. The loans arise under financial arrangements between FINSAC and intervened financial institutions to correct liquidity and solvency problems being experienced by the institutions concerned. Although the increase in loans was $2.3 Billion, an amount of $2 Billion of this represents the second tranche accessed by one intervened institution (Jamaica Mutual Life Assurance Society) under an agreement negotiated in the 1997/98 fiscal year. New loan agreements therefore account for disbursements of $748.3 Million, and were made as part of assistance package to five smaller banking and insurance sector institutions. Whilst gross loans outstanding grew by 15.3%, the rate of provisioning in the period under review resulted in a 24.45 % increase in the aggregate provision for losses from $11.42 Billion in 1998 to $14.21 Billion in 1999. As a result of this, net book value of loans, compared to original loan advances, has declined to 17.4% at March 31, 1999 compared to 23.4% at March 31, 1998.

FUNDING
FINSAC’s source of funding was initially based on advances from the Bank of Jamaica and the Government of Jamaica through the Ministry of Finance. Since then, funding of the Intervention and Rehabilitation stages of the Company’s operations have been based on the issuance of its own bonds, and to a lesser extent from the proceeds of asset divestments including real estate disposals and recoveries against non-performing loans. There has been an 18% increase in the Company’s liability to the Central Bank and the Government of Jamaica, which arises for the most part from interest accruals over the year.

New bond issues to underwrite the Company’s intervention and rehabilitation activities increased the stock of outstanding bonds to $49.8 Billion, up by 31.4% from the previous year’s total of $37.9 Billion. However, the increase of $11.9 Billion is inclusive of $8.1 Billion of bonds issued to meet interest payments which fell due during the year.