Clarien bad loans weigh on NCB Financial
Published:Friday | October 2, 2020 | 12:17 AM
Clarien Bank Limited just ended its second loan moratorium for clients, one of the steps it took to cool the growing pace of defaulted loans on its books, which in Jamaican dollar terms was estimated at $13 billion in March.
The bank, based in Bermuda – an island roughly one-tenth the size of Kingston – accounts for more than half, 58 per cent, of the total defaulted loans of parent NCB Financial Group.
NCB Financial Group acquired the bank in 2017 knowing that it would have to work to improve its book of bad loans. Things were improving and then came the COVID-19 pandemic, erasing most of the gains made up to 2019.
“The past few months have been challenging for the community and Clarien understands that individual and business circumstances may have changed significantly during this time. We also understand that many may be uncertain about their financial situation as the island economy progresses through its phased reopening,” said Clarien’s chief banking officer, Simon Van de Weg, in a release about the loan moratorium.
Clarien offered the loan moratorium for residential mortgages and personal loans of any balance, but up to US$2 million for commercial loans. In March, the bank temporarily waived credit card late-payment fees and credit card over-limit fees per transaction. That benefit ended on April 30.
Defaulted loans which are unserviced for 90 days within Clarien Bank worsened in March to over US$91.7 million, up one-third year-on-year from US$68.8 million. The defaulted loans now account for 12.7 per cent of total loans, according to its pillar report, a type of regulatory reporting that details the health of its capital and assets. The bank remains adequately capitalised.
In March, Clarien offered a loan payment deferral which it has since extended by three months to the end of September.
Clarien’s non-performing loans peaked at US$103.9 million in June 2016, then representing 13.7 per cent of its total loan book. By 2019, they were down to less than US$69 million.
NCB Financial holds a 50.1 per cent equity stake in Clarien, while Edmund Gibbons Limited retains 31.98 per cent and Portland Private Equity holds 17.92 per cent. With the addition of Clarien, NCB Financial’s non-performing loans at the time grew to $18.2 billion from $5.4 billion in the prior year.
Currently, NCB Financial’s non-performing loans amount to $22.8 billion, which amounts to 5.0 per cent of total loans as at June 2020, compared to 4.5 per cent in June 2019. It means that Clarien’s defaulted loans still account for more than half of the group’s worsening loan portfolio.
The next pillar report for the June quarter will show whether the defaulted loans have stabilised or worsened further.
Clarien stated in its pillar reports that loans are classified as past due after 90 days have passed since a payment is missed. Additionally, credit card receivables that are contractually 180 days past due are automatically written off.