NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed National Commercial Bank Jamaica's (NCBJ) long-term Issuer Default Rating (IDR) at 'B-'. The Rating Outlook is Stable. A full list of NCBJ's ratings follows at the end of this press release.
A strong domestic franchise, solid profitability, and adequate capitalization support the current ratings of NCBJ. Nevertheless, NCBJ's ratings remain constrained by the sovereign's weak credit profile given high exposure to the Jamaican public sector, lending concentrations, as well as a challenging operating environment.
The bank's Support rating is constrained by the sovereign's weak credit profile. However, the Support floor of 'B-' indicates Fitch's view that NCBJ's systemic importance makes the government's propensity to support the bank high although its capacity may be weak.
The Rating Outlook on the bank's IDRs is Stable and in line with Fitch's view of the sovereign's creditworthiness. Future rating actions will be highly contingent on a change in this view given the bank's sizable sovereign exposure. A downgrade of the bank's ratings could be driven by an unexpected marked deterioration of asset quality that weakens profitability and/or capitalization.
Although declining, investments and loans to the Jamaican government, public entities and entities with a Jamaican government guarantee continued to represent a high proportion of NCBJ's assets at 52%, or about 3.1 times (x) its equity, in the fiscal year ended September 2011 (FYE11). The bank's exposure to the public sector remains high as private sector credit demand has yet to substantially recover. Fitch Ratings remains concerned about this high asset concentration given Jamaica's low sovereign rating (long-term issuer default rating (IDR) of 'B-' with a Stable Outlook).
A still high lending concentration, albeit declining, contributes to volatile asset quality indicators as illustrated by the increase in the bank's non-performing loans (NPLs)/gross loans ratio to 7.1% at FYE11 from 3.2% at FYE10. At FYE11, the 20 largest exposures by economic groups represented 36% of total lending (40% at FYE10) and 58% of total equity (73% at FYE10). Fitch expects concentrations to continue declining as exposure to the retail sector increases.
Adequate spreads and the growing importance of non-interest income combined with controlled credit and operating costs benefit NCBJ's profitability and support internal equity generation, trends Fitch expects to continue over the medium-term.
During the last four fiscal years, the bank's return on average assets ratio (ROAA) has averaged 3.4% comparing favorably to similarly rated peers (emerging market commercial banks rated 'B-/B/B+'). Despite declining interest rates and increased operating expenses, gains on foreign currency activities, non-recurring investment income and strong net insurance income growth benefited NCBJ's net income in FY11, contributing to an increase in the bank's ROAA to 3.77% at FYE11 from 3.44% at FYE10.
Solid internal equity generation combined with low dividend distributions and single-digit asset growth boosted NCBJ's equity/assets ratio to 17.4% at FYE11 from 14.6% at FYE10, also comparing favorably to similarly rated peers. At 36.7% as of FYE11, the bank's Fitch core capital/weighted risks ratio is also high relative to peers. However, in light of important asset concentrations Fitch views NCBJ's capitalization as adequate.
NCBJ is the largest bank in the system in terms of assets with more than 30% of market share in recent years. In 2002, the Jamaican government sold a majority stake in the bank to Advantage Investment Corporation (AIC), one of Canada's largest privately held mutual fund management companies.
Fitch has affirmed NCBJ's ratings as follows:
--Long-term foreign and local currency Issuer Default Ratings (IDR) at 'B-';
--Short-term foreign and local currency IDR at 'B';
--Viability Rating at 'b-'
--Support Rating at '5';
--Support floor at 'B-'.
Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
Applicable Criteria and Related Research:
--'Global Financial Institutions Rating Criteria' (Aug. 16, 2011);
--'Jamaica: Full Rating Report' (Feb. 10, 2012).
Applicable Criteria and Related Research:
Global Financial Institutions Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=649171
Jamaica
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=670630
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