NPLs dip back below J$29b

Jamaican loans unserviced for three months or more totalled J$28.9 billion at September 2011, reflecting a 46 per cent annual increase, Bank of Jamaica (BOJ) data indicate.

The stark rise in non-performing loans (NPLs) came at a time when banks, near-banks and building societies kept their loan portfolios flat at J$348 billion.

It is the second largest NPLs on record in absolute terms, following the J$29.2 billion in the June 2011 quarter. It however does not threaten the viability of the financial institutions, as it represents 8.3 per cent of total loans; and even less, 3.6 per cent of loans, once provisions for bad debts are factored. Comparatively, in the financial crisis of the 1990s, NPLs represented, at times, half of the total loan portfolio.

In the September quarter, according to prudential Indicators published by the BOJ, near-bank NPLs grew 278 per cent to J$3 billion; followed by commercial bank NPLs, up 50.9 per cent to J$19.7 billion; and building society NPLs, up 3.5 per cent to J$6.1 billion.

Data on individual company NPLs was not disaggregated, but the National Commercial Bank of Jamaica, the island's largest, reported that its non-performing loans doubled to J$6.7 billion at September 20111 from J$3 billion in 2010 at its September year end.

Notwithstanding, the bank made J$13 billion in net profit, up 18 per cent year on year. NCB in its June quarter revealed that it was affected by one unserviced loan.

In July, NCB placed Palmyra Resort and Spa into 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. That loan is fully secured by real estate as collateral. 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. The Palmyra complex which began in 2005 comprises three towers, two of which have been completed.

In April, another financial entity Capital & Credit Financial Group, which runs a near-bank, defended its merchant bank subsidiary's underperforming loan portfolio, pointing out that a large portion of its NPLs was restructured.

Curtis Martin, deputy group president, banking and investment services, and chief executive officer of Capital and Credit Merchant Bank, said at the time that "Of the J$2.86 billion classified as non-performing under the GOJ regulations, J$2.3 billion of those facilities were performing as per the rescheduled arrangement."

Despite the restructuring of the majority of the loans, Martin said the debt must remain classified as non-performing for 12 months, under BOJ regulations.

steven.jackson@gleanerjm.com