By Kimberly Ramkhalawan
February 17, 2023
From Investor confidence following the SSL fallout, to Jamaica’s government roll out of its Twin Peaks model, JMMB CEO, Keith Duncan spoke confidently of the company’s plans for the new year across its regional territories, as it hosted its Group Limited Third Quarter Investor Briefing.
In its financial reports, the JMMB Group posted solid net profit of J$4.8bn for the period ending December 31, 2022, despite continued adverse market conditions. The Group continues to successfully execute its diversification strategy and has been reaping the benefits of this from strong contributions to growth and profitability outside of Jamaica and its original flagship investments business line.
However, CEO, Keith Duncan says its investment business line can expect to be affected by the current tight monetary policy on the net interest side and the gains on the security state particularly in Jamaica and the Dominican Republic, where he attributed the “stellar performance from an accommodative monetary environment within JMMB’s group profits within the last nine months which was as a result of COVID recovery.”
This new policy he says now sees a hike in interest rates, reducing the ability to grow the investment income streams. He adds that the banking business line has remained solid and very stable for this period due to its income streams, business line and group diversified portfolio divisions, allowing the banking business line to grow significantly at the level of its location countries.
In Trinidad and Tobago, he says its banking business line has continued to do well year after year, with investments growing due to its Central Bank not moving as aggressively in terms of interest rates despite its tightening of monetary policy.
Duncan says despite rising interest rates across the board, JMMB continues to remain fairly solid adequately capitalized, having seen an upgrade in its credit ratings from CariCris to Cari-A minus.
Added hopefulness Duncan says comes from measures taken by the US Federal reserve to move into a ‘disinflationary period’ by slowing their pace on interest rate increases, giving him reason to believe they are at a point of inflection in terms of their both global and local domestic interest rate environments where things are beginning to normalize.
Patrick Ellis, Chief Financial Officer says the Group’s banking business line was the largest revenue contributor, accounting for 52 percent of net operating revenue, up from 37 percent in the prior period. In terms of geographic contribution, the Group’s regional diversification strategy continued to yield benefits as Trinidad contributed 23 percent to operating revenue, up from 15 percent in the prior period. Sagicor Financial Company Limited (SFC) also contributed positively to the Group’s profitability with J$2.12bn in share of profit.
Dereck Rajack, Group Chief Risk Officer, gave an assurance that all its subsidiaries continued to be well capitalized well above regulatory requirements, despite in October having shared then, that capital injections into JMMB and JMMB Banking were impacted by fair value losses. His response came as questions were posed around its current base of the groups subsidiaries and whether they anticipated preferential raises to further boost capital. He says after the $4bn injections last year, JMMB was now at 18 percent and the bank at 13 percent, while the strength of its Jamaican operations was not based on the market, but the strong growth in its banking loan portfolio. Rajack adds that this was done based on ‘projections which allows the entity through the volatility to give it some room, once the markets are close to pivots’.
Later this year, Basel III comes into effect, a project with the Bank of Jamaica (BoJ), where its parallel run phase of the project was recently launched. As for anticipating the impacts it will have, Rajack says it is still early to gauge as the reports are quite extensive. He adds that while there have been changing capital requirements, there will be opportunities to look at the asset classes that have been capital efficient lower than capital charges, as part of its smart growth strategy.
With Jamaica is looking at the implementation of the “twin peaks model” of financial sector supervision and regulation, expected to be streamlined in 18 to 24 months, CEO Duncan says in his understanding, regulator oversight has always been toward consolidated supervision, something JMMB already has the input from the Bank of Jamaica, while he feels confident that this will be model that will be more efficient to serve both market and consumer protection, as well as financial and prudential supervision. Duncan adds that this will add to consumer confidence as it has been something customers have been requesting as a level of oversight for their protection. Nevertheless, he shares that JMMB has its own processes fee, related value-added fees, and cost recovery and no nuisance fee that covers customer investments.
The model is intended to modify the existing sector-by-sector-based regulatory approach, which sees the Bank of Jamaica (BOJ) supervising deposit-taking institutions (DTIs), with the Financial Services Commission (FSC) having oversight for non-bank financial institutions.
As to the latest local financial debacle involving SSL, Duncan admitted it was the elephant in the room as he understood the need-to-know behind such pressing issues, as it would have done some damage to the consumer confidence in investing, especially after it affected Jamaican National Hero, Usain Bolt. Duncan assured that the Jamaican Financial sector continued to be resilient and strong and explained that the SSL situation was not systemic, rather an individual institution that had its challenges, while the broader financial sector continues to be adequately capitalized and very stable according to the IMF and other multilateral agencies that keep these in check.
He assured that the financial sector, both the deposit taking, investments and pensions continue to be stable, as Jamaica was constantly evolving its regulatory oversight despite the changes in the markets with increased interest rates.
Duncan added that he did not see it having a long-term impact as Jamaica would just have to work through the noise, seeing that the fundamentals were very much strong.
According to the latest report, the Group’s asset base totalled J$640.47bn, up four percent relative to the start of the financial year. This was mainly on account of a larger loan portfolio which grew by 16 percent to J$165.98bn. Deposits grew by eight percent to J$163.60bn, while repos increased four percent to J$309.66bn. Further, an additional tranche of funding was received from IDB Invest, a member of the Inter-American Development Bank Group. This funding is earmarked for the SME segment and will improve the capacity of JMMB Bank Jamaica Limited to continue building out its SME solutions suite. Over the nine-month period, shareholders’ equity decreased by 12 percent to J$49.53bn.