Deposit-taking institutions make more money from forex trading
Published:Friday | March 29, 2019 | 12:20 AMAvia Collinder - Business Reporter
The central bank, in its 2018 report tabled last week, says the island’s 11 deposit-taking institutions which it currently supervises, including two building societies, eight commercial banks and one merchant bank, made more money from foreign exchange trading and investments.
The deposit takers may have been benefiting from wide swings in local currency value, which allow them to buy on appreciation and sell at better value when the ratio between the local dollar and the United states dollar changes.
During 2018, the US dollar ranged in value between a high of J$138 and a low of J$124.
For the total deposit-taking sector, pre-tax profit climbed upwards $13 billion year-over-year to $50.4 billion. A $23.1 billion surge in non-interest income contributed to the growth.
“This improved performance in non-interest income was largely reflected in higher gains from securities and foreign exchange trading activities,” the Bank of Jamaica, BOJ, annual report states.
The BOJ noted that the source of funding for investment and loan offerings came from increased customer deposits which increased by nine per cent, plus increased shareholder equity and wholesale funds.
A moderate increase in net interest income ($3.6 billion) was due, the BOJ said, to deposit-taking institutions not being able to reinvest proceeds from maturing Government of Jamaica securities at comparable rates.
The companies continued to enjoy improved income from loans and other fee income, such as transaction fees, commissions and service charges, which continued to account for approximately 20 per cent of total operating income.
Overall, return on equity for the sector increased to 21.9 per cent relative to 18.2 per cent for 2017.
Total assets in the sector was $1.658 trillion as at September 2018, of which commercial banks possessed $1.5 trillion.
The top five banks – National Commercial Bank, Bank of Nova Scotia, Jamaica National Bank, Sagicor Bank and First Caribbean-CIBC Bank- increased sector dominance to 83.7 per cent of assets, up from 83.3 per cent in 2017.
Asset growth of 10 per cent was spurred by loans and advances and net investments.
The BOJ noted that asset quality also improved, as measured by the ratio of non-performing loans to total loans, with the stock of performing loans outpacing the growth in non-performing loans, NPLs.
The NPLs-to-total loans ratio fell marginally to 2.5 per cent, from 2.6 per cent at end-2017.
The BOJ said that abstracting from an extraordinary classification, total NPLs increased marginally by 4.7 per cent or $0.8 billion, which brought the stock of NPLs to $19.9 billion as at end-2018.
It said loan-loss provisions continued to provide adequate coverage of NPLs as evidenced in a ratio of 112.5 per cent.