BARITA Investments Limited’s Jamaican dollar government bond portfolio should keep the company posting higher profits — provided there is economic stability — according to the firm’s general manager, Ian McNaughton.

The introduction of Financial Services Commission’s regulations, which require companies like Barita to keep its regulatory capital above 10 per cent of the value of its risk weighted assets, limits the company’s ability to take on more foreign currency denominated government securities, which currently stands at J$3.2 billion.

In any case, Jamaican dollar securities are preferred now due to the higher rates of interest that they carry, according to McNaughton. Barita grew its holdings of marketable securities and pledged assets — which are mostly made up of government paper — from $7.3 billion as at September 30, 2010 to $12.5 billion at the end of 2011. This translated into flat interest income, due to considerably lower interest rates post JDX, but interest costs fell dramatically.

As a result, Barita posted $147 million in net interest income for the three months to December 31, 2011 compared to $108 million for the same period the year before, following its last financial year when it posted 126 per cent year-on-year net profit growth, from $97.1 million to $219.1 million.

The increase in its holdings of government paper largely reflected growth in its Jamaican dollar securities portfolio from $6.2 billion as at September 30, 2010 to just under $9 billion a year later. Over the same period, US dollar securities grew from $3 billion to $3.3 billion.

McNaughton said it was unlikely that Barita will fail to meet the regulatory requirements.

The required risk weighting has been increasing by 12.5 per cent each quarter since June 2010. It should reach 100 per cent by June.

When the risk-weighting requirement was 12.5 per cent, Barita had a ratio — regulatory capital to risk weighted assets — of 46 per cent in 2010, but having accounted for 75 per cent of the risk up to last December the ratio fell to 18 per cent — not far from the early warning benchmark of 14 per cent.

“Our sensitivity analysis showed that it is unlikely to fall to that level (10 per cent),” said McNaughton yesterday at the company’s annual general meeting held at the Courtleigh Hotel in Kingston. He added that the company can maintain its strategy and will achieve a ratio of 17.5 per cent when all the foreign currency risk is accounted for.