Palmyra default weighs on NCB
Published:Friday | August 12, 2011 | 12:00 AM
The dramatic increase in bad debts on National Commercial Bank of Jamaica's (NCB) books in the June quarter was due to default on "one large loan", the bank has said.
NCB did not name the client, but three weeks ago it placed Palmyra Resort and Spa in receivership for failing to service a US$88-million financing facility arranged by NCB's corporate banking unit after reclassifying the loan in the bank's second quarter ending March.
"The loan is fully secured by real estate," said spokeswoman Sheree Martin, general manager of marketing, communications and service delivery division.
"Had this loan continued to be a performing loan, then the recalculated ratio would have been around 4 per cent and 3.9 per cent, when compared to 7.3 per cent and 7.4 per cent for the quarter ending June 2011 and March 2011, respectively," Martin said via email.
NCB in 2007 structured financing for the condo-hotel development, but assumed only a portion of the liability. The syndication included the banking group's subsidiary NCB Capital Markets, acting on behalf of institutional and individual bondholders, and RBTT Jamaica, now RBC Royal Bank Jamaica.
NCB's non-performing loan (NPL) portfolio was estimated at J$6.7 billion or 7.3 per cent of its total loan portfolio at June 2011.
The Financial Gleaner estimates that about J$2.5 billion to J$3 billion (US$29m to US$35m) is related to the Palmyra debt, based on NCB's disclosures.
Martin insists that the bank's performance, all things considered, is comparable to that of its closest rival, Scotiabank Jamaica; and compares favourably with the commercial banking sector (see insert).
Industry NPLs rose to J$17.1 billion, or 6.9 per cent of total loans at March 2011.
"While the adjusted ratios would be slightly higher than the ratio for the bank's December quarter, it also reflects the growth in the loan portfolio, which usually results in the taking of a mandatory 1 per cent provision for each new loan we grant, as well as the expected normal increases in non-performing loans in an economy experiencing weakness," she said.
"When we compare ourselves to our nearest competitor, we compare favourably to their NPL of 4.2 per cent."
Scotiabank, at last disclosure in April 2011, reported NPLs of J$4.223 billion, or 4.2 per cent of total loans, but advised the market that the amount had been fully covered by provisions of J$4.224 billion.
NCB said it continues to monitor delinquent accounts closely.
"Our proactive delinquency management strategies continue to serve us well. We continue to make daily contact with our delinquent customers, with a view to understanding their challenges and providing them with solutions," said Martin.
"Accounts that have moved to late stage delinquency and to non-performing status despite the bank's best efforts are dealt with swiftly, generally through asset sales or the services of external debt collectors or through the courts."
Palmyra was placed in receivership on the weekend of July 23, under the control of Ken Tomlinson of Business Recovery Services Limited.
Principal investor Robert Trotta said he and his partners have put US$100 million of equity into the development and would be negotiating with the banks to regain control of the condo-hotel.