Bad debt eases
NON-PERFORMING loans (NPLs) owed to Jamaican financial institutions fell marginally over the three months to September 30, 2009, even while total loans outstanding in the system fell over the three-month period by an even smaller margin.
Total NPLs, which are loans that have not been serviced for over three months, fell from $14.6 billion at the end of June 2009 to $14.2 billion at the end of September — a 2.4 per cent reduction — according to the latest prudential indicators released by the Bank of Jamaica (BOJ).
On the other hand, total loans in the financial system fell from $352.7 billion to $350.4 billion over the periods under review — a decline of 0.6 per cent.
This is the first time that financial institutions have seen an ease on bad debt since NPL growth started to accelerate in the June quarter of 2008, but the reduction was seen largely on mortgages held by building societies while commercial banks saw an increase in NPLs coupled with a larger reduction in outstanding loans.
Commercial banks’ NPLs grew by $48 million to $9.41 billion over the three-month period but gross loans dropped by $2.1 billion to $257.2 billion.
The banks did, however, increase their provision for loan losses to $8.8 billion, which increases its coverage of NPLs from 91.1 per cent to 94 per cent.
All commercial banks, excepting Pan Caribbean Bank (PCB), saw their loan portfolios shrink with FirstCaribbean International Bank Jamaica (FCIBJ) seeing the largest decline — a $1.2-billion drop to $27.9 billion over the three months to September 30, 2009.
That decline was followed by National Commercial Bank (NCB) and RBTT which saw their loan portfolios decline by $468 million and $429 million respectively.
Even though FCIBJ saw the largest decline in its loan portfolio, NCB made the biggest upward adjustment to provisions for loan losses — $141 million to $2.4 billion.
FCIBJ increased its provision by $74 million, followed by Bank of Nova Scotia, with its $45-million increase.
BOJ’s data didn’t show how each individual bank performed in terms of NPLs.
However, the BOJ figures showed that RBTT went deeper into its loss position, which it entered in the June quarter.
RBTT Jamaica had racked up a $600-million loss during the June quarter as a result of “the current economic slowdown has had a negative impact on a number of sectors within the Jamaican economy, and a number of our clients,” according to the bank.
According to the Assets and Liabilities of Commercial Banks, as at 30 June 2009 released by BOJ, RBTT had unappropriated loss of $593 million compared to unappropriated profit of $124 million at end of March 2009.
Then, RBTT increased its provision for loan loss from $972 million at the end of March to $1.85 billion at the end of June, increasing the proportion provision for loan loss to total loans from 2.5 per cent to 4.9 per cent — the highest ratio among commercial banks at the end of June.
The latest BOJ shows RBTT with unappropriated losses of $673 million, or $81 million deeper in the red three months later.
First Global Bank (FGB), which incurred $1.77 billion in trading losses from “unauthorised and undisclosed trading activity”, was the only other bank to have unappropriated losses at the end of the September 2009 quarter.
FGB expensed $302 million of the trading loss during the review quarter and the remainder during prior periods.
The BOJ figures show the bank having unappropriated losses of $87 million and prior years’ deficit of $221 million, a turnaround from the $251 million in unappropriated profit and zero deficit/earnings for prior years reported by the central bank for end June 2009.