National Commercial Bank Jamaica Limited (NCBJ) was the most profitable listed company on the Jamaican Stock Exchange last year. Its capital ratios far exceed minimum regulatory requirements and new unit trust products are currently in development.
While much of the global financial industry is still finding its feet, the Jamaican economy is increasingly eyeing opportunities for prosperity, despite recessionary concerns. Credit agencies like Standard & Poor’s share the optimism, recently upgrading the country’s economic outlook to ‘Stable.’
How did NCBJ, winner of the World Finance award for Best Banking Group, Jamaica, 2011, do so well in the last financial year – especially when many other financial institutions reeled from a global lack of credit and confidence?
It certainly didn’t have much help from the domestic economy, explains Patrick Hylton, managing director of NCB Group. “These results were achieved in a year of unprecedented developments in our nation’s affairs,” he says, “highlighted by a Government of Jamaica debt exchange programme, which significantly impacted our operating income. Given the impact of the debt exchange programme, we were proactive in undertaking a number of initiatives to enhance revenue, contain costs and maintain a strong capital base and liquidity.”
The recent drop in market interest rates, plus a subsequent narrowing of spreads, means the business remains highly focused on growing its loan and credit card portfolios, diversifying into non-interest market products such as unit trust and other collective investment schemes.
“[The World Finance award] reflects the confidence our customers, regulators and all stakeholders have in our institution and the way we do business,” says Mr Hylton. “It endorses the strength of our organisation which enhances our reputation and bolsters consumer confidence in our ability to effectively service their financial needs. We are very grateful for this award as it represents a positive outcome of our collective expertise and our continued efforts to be the best in our business.”
Pension priorities
The company is increasingly focusing on the pensions market. Though some pension plans have existed in Jamaica for many decades, less than 10 percent of the labour force is covered by a formal pension plan.
According to the most recent data from the regulatory authority, published in October 2010, there are some 487 active pension plans with asset values totalling approximately $228bn. Approximately 47 percent of these funds is self managed, with the balance of pension assets managed by institutional managers such as the NCBJ bancassurance subsidiary NCB Insurance Company (NCBIC).
Indications from the government that greater focus on retirement planning for the population is needed will increase in future. This is expected to include arrangements for members of the public sector to join contributory pension schemes that ultimately lessen the burden on the public purse.
“The real growth in the pension industry in Jamaica is expected to come from enrolment in the Approved Retirement Schemes,” says Mr Hylton. “This pension arrangement is attractive as administration is simple and cost efficient. The real challenge will be to convince those individuals not currently part of a pension fund to recognise the value of tax efficient saving towards retirement.”
IMF support
Overall it’s a bold, exciting strategy that also has IMF backing. The fund’s representative to Jamaica, Dr Gene Leo, has called for pension fund managers to take on more risks for higher yield returns, while exercising good governance – a strategy NCBJ is closely adhering to.
Meanwhile the economic background is challenging. A recent interest rate drop was considerable: weighted average deposit rates fell from 5.47 percent in January 2010 to 2.92 percent in January 2011, while the weighted average lending rates moved from 23.10 percent to 20.04 percent over the same period.
Contrary to expectations that a low interest environment would be inflationary, headline inflation for the 2010-11 fiscal year was relatively low at 7.8 percent, closer to the lower end of the central bank’s target range (7.5-9.5 percent) compared to 13.3 percent for 2009-10.
“This was as a result of the low aggregate demand given the double digit unemployment rates that is estimated at 12-13 percent for 2010,” says Mr Hylton. “However, in the near term domestic inflation is expected to be adversely impacted by the pass-through of a significant rise in commodities prices on the international market.”
Exiting recession
Officially, the Jamaican economy remains in recession. As at December 2010, the economy contracted for the 13th consecutive quarter. So the primary economic challenge continues to be how to stimulate growth.
A key part to stimulating the economy lies with the professional middle class – many of whom are now home owners – who are seeking more cutting edge, sophisticated products that allows them to manage their own levels of risk. Hence the increased focus on unit trusts products.
“This will enhance the number of investment alternatives available to our customers and help to diversify our revenues away from interest sensitive products,” says Mr Hylton.
“In addition we will be focused on rounding out our suite of credit card products to ensure that we have a suitable and value added product for each key customer segment. We will also be tailoring existing core products – i.e. loans, deposits – to support the needs of young professionals, small and medium enterprises, women in business etc.”
That route is of course being supported by considerable investments in technology – and NCBJ view technology as a critical business enabler. They are making investments in technology that will facilitate seamless interactions for customers between many areas of the bank.
“As with most financial institutions globally, we are leveraging IT to move away from business silos toward more customer friendly organisational structures,” says Mr Hylton.
Power of the brand
Of course, a key component of NCBJ’s marketing mix is branding. This has been built on a careful foundation of innovation, including IT, client relationships and market strength, says Mr Hylton. “We’re using innovation and technology to provide financial solutions to meet the needs of our customers in addition to driving operational efficiencies.”
Expertise – through superior relationship management skills – is where NCBJ builds trust and loyalty, he says, “via NCBJ professionals possessing and demonstrating knowledge in the relevant areas of our business.”
Solid, unquestioned financial strength is the cornerstone of NCBJ’s brand mix. This is managed within a framework of sound and prudent management while observing all proper ethical, regulatory and financially responsible practices. Indeed good governance plays a big role in NCBJ’s wider business model.
Its financial clout should not be underestimated. As of the last 30 September 2010, stockholders’ equity stood at JMD 49bn ($579m) – an increase of 19 percent on the previous financial year. “Our return on average equity ended the year at 24.7 percent,” says Mr Hylton. “And net worth to total assets ended the financial year at a robust 14.57 percent, further highlighting our strength.”
Added to this are its social responsibilities. Because NCBJ is Jamaica’s leading financial institution, it is committed not just to creating financial prosperity but “instilling social consciousness through nation building activities.”
Mr Hylton explains: “Through the relationships with our employees, customers, shareholders, suppliers, regulators and the wider public, we are focused on and known for sustaining our strength and helping to build a better Jamaica.”
First rate governance
NCBJ has adopted all major international principles and guidelines on corporate governance to guide it and its subsidiaries across its responsibilities. These principles and guidelines are founded in its tradition of integrity and core values.
“The bank has a code of business conduct which speaks to conformity with the law, ethics, proper use of assets, confidentiality, reporting requirements and avoidance of conflicts of interest,” says Mr Hylton. “Members of staff and directors are expected to be conversant with code and strict adherence is mandated.”
To implement such principles, the bank’s board is charged with guiding and monitoring the business and affairs of the bank to ensure the interests of all stakeholders are protected. “Great efforts are made to provide a balance of independence, skills, knowledge, experience, and perspectives among directors to allow the board to work effectively,” says Mr Hylton.
Rules around directors taking on other directorships must be disclosed to the board and where there remain potential conflicts of interest, these are always declared. And the board has established several standing committees – including an asset and liability committee, audit committee and strategic planning committee – with their own terms of reference.
All these moves will inspire confidence in the NCBJ brand. The word ‘confidence’, Mr Hylton knows, is key. And he believes it’s a word NCBJ has truly earned.
Best Pension Fund Manager 2011
NCB Insurance was voted best Pension Fund Manager, Caribbean 2010 (for the second consecutive year) in recognition of the service provided by it and through the NCB Group for more than 49 years. It is now the largest segregated pensions fund manager in Jamaica with funds under management of approximately $48bn split between Defined Benefit and Defined Contribution Pension Plans. The company provides insurance products as well as a full range of products to support retirement planning for groups and individuals. NCB Insurance offers pension administration and investment management services for employer sponsored pension plans; it also sells annuities and in 2010 it introduced an individual retirement product called the SMART (Secure Money At Retirement) Retirement Plan.
