NCB dividend hiatus
Published:Sunday | February 6, 2022 | 12:08 AM
NCB Financial Group, the regional conglomerate based in Jamaica, made billions in its first quarter spanning October to December, but has again avoided paying dividends, its earnings having fallen short of prior periods.
“We will alight from this dividend hiatus, which is tough, I know, and we all know. But once we start it, you can count on us,” said Chairman Michael Lee-Chin while addressing the banking group’s annual general meeting, AGM, on Friday.
“It has been a difficult year,” said Lee-Chin, who has chaired the bank for two decades, having acquired it in 2002 by way of AIC Barbados.
Prior to the COVID-19 pandemic, NCB Financial was a faithful distributor of dividends, paying out a record $8.3 billion in 2019. But since 2020, amid the health crisis when large financial institutions were told to safeguard their cash in case of emergency, NCB Financial put a pause on dividends that were usually paid quarterly, and since then has made only one distribution totalling $1.2 billion or 50 cents per share.
At the meeting, shareholders voted on a formality to approve the 50 cents dividend that was paid out in May 2021. One shareholder voted in dissent.
Lee-Chin attempted to show that despite the lack of dividends, lower profit, and the virtual halving of the stock price from highs of $230 in 2019 to current levels of about $130, that the group has made gains.
“We now have a platform not only in Jamaica but also in the Caribbean that we didn’t have 20 years ago,” he said of NCB Financial, which topped $2 trillion in assets in December, and is the majority owner of regional insurance conglomerate Guardian Holdings Limited.
Lee-Chin noted that back in 2002, the bank was generally regarded as a failed institution run by the Jamaican Government, which rescued the bank among others, during a period of crisis for the sector in the 1990s. It was non-competitive, filled with bureaucracy and affected by low staff morale. And, at the same time, Jamaica was suffering from high inflation and interest rates, and kept jumping from crisis to crisis.
“The bank was ugly and inefficient and we had an economy that was ugly and inefficient,” said Lee-Chin, adding that ugly creates wealth once transformed into efficient operations. Fast-forward to 2022, and the bank and Jamaica are more productive than 20 years ago.
“But there’s still room to become efficient,” he said.
NCB Financial made $5.4 billion in net profit for the December 2021 first quarter, down eight per cent year on year. Net revenue barely grew, moving from $33.8 billion to $34 billion, with most of the gains coming from insurance activity.
At the AGM, group executives said that they wanted to continue conserving cash during the pandemic. The banking group’s cash pile is now estimated at $187.6 billion, a step down from $189.3 billion the previous year.
“The board has agreed that given the challenges facing us now, our best strategy is to optimise and solidify our capital base now and hence the reason there are no external payouts,” said Chief Financial Officer and Deputy CEO Dennis Cohen in response to a dividend query. “We will continue to assess the environment for external distribution as we see appropriate,” he said.
NCB Financial has not revealed a target range it wants to land at before issuing dividends. It currently holds $91 billion in retained earnings, amid equity of $164 billion.
But at eight per cent, its ratio of equity to total assets falls well below financial peers Sagicor Group Jamaica at 22 per cent and Scotia Group Jamaica at 20 per cent, Financial Gleaner calculations show.
During the December quarter, the core operations of NCB Financial generated a lot more cash compared to the burn recorded the previous year. Its operating cash flow totalled $43 billion, compared to a deficit of $26 billion a year earlier.
Cohen noted that four of the banking group’s seven segments earned higher profit.
Also, amid the 13 per cent growth in assets, loans grew 19 per cent to $550 billion for December 2021. Non-performing loans inched lower to 5.9 per cent of the portfolio from 6.0 per cent.
Looking ahead, NCB Financial President & CEO Patrick Hylton said several shifts are occurring in the world that will affect business and lives going forward.
“We are not waiting for a return to normal, but rather we are laying the foundation for our organisation to thrive in any context,” said Hylton. “We know that the pandemic is not the only thing shaping the new global normal. Cryptocurrency, NFTs (non-fungible tokens) web 3.0, climate change and ESG activism are just a few game-changing and disruptive shifts that have accelerated the new normal,” he said.
Hylton also told shareholders that NCB continues to evolve by investing in financial technology, including setting up easy e-commerce channels for businesses, online lending, and the creation of its Lynk mobile wallet app.