Jamaica
News - Real Estate - Finance (July 21,
2004)
JN's profit crosses $2-b mark
Jamaica National Building Society
posted after tax group profit of $2.05 billion for the financial year to March
31, 2004, $669 million or 48 per cent more than the net income of the previous
year.
The spectacular performance follows a year
when the building society crossed the important $1-billion mark by earning some
$1.3 billion in net income.
Jamaica National, the conglomeration of a dozen
and a half subsidiaries and associates, is now reaping the benefits of having
deployed its capital to create a vertically and horizontally integrated group.
Remaining at its core is mortgage funding,
though this important activity no longer completely dominates the income side of
the group's profit and loss account.
The nature of the company is reflected in the
numbers: the $1.92 billion earned from mortgage and other loan interests, though
a respectable 24 per cent increase over the previous year accounted for a modest
21.7 per cent of the group's $8.84 billion revenue.
The group, best known as a provider of
mortgages, had an average loan portfolio throughout the year of roughly $10.5
billion - loans having grown from $9.4 billion to $11.6 billion. The credit
portfolio therefore represented 25.3 per cent of the group's average asset base
of $41.5 billion - again with assets having jumped from $36.3 billion to $46.8
billion.
On the face of it, lending therefore represented
a lower yield on asset deployed, than the average return generated by other
income generating streams at this institution.
One factor that may have accounted for this
relatively modest return is the fact that the building society, operating in a
highly competitive segment of the financial market, has had to offer competitive
mortgage rates to maintain its lead position in the industry.
But the portfolio is less than perfect. This
building society, with just under 22,000 individual and corporate accounts, has
been carrying a relatively large loan loss provision on its mortgages. At
balance sheet date, it had $771 million in doubtful loans - on which interest no
longer accrued.
Though this represented an improvement on the
$892 million in doubtful debt a year earlier, at 6.77 per cent of the overall
gross mortgage portfolio, it is an item that requires continued close
monitoring. This level of doubtful debt would have negatively impacted the yield
on the institution's mortgage portfolio.
There is, however, clear evidence in the
financial statement that this is an issue that is being successfully tackled by
the management of the institution. For example, at the beginning of 2002/03 the
group reported $884.9 million in provision.
During that year an additional $36 million in
new provision was made, while a sizeable $220 million was written back.
For the review year the positive trend deepened,
with $40 million in new provisioning and $170 million in write backs. The net
doubtful debt portfolio is therefore moving in the right direction.
Another item that has moved in a positive
direction - with dramatic impact on the P&L - is interest eared on
investment, plus dividend - up $1.6 billion or almost 58 per cent to $4.4
billion.
The combined interest on loans, and interest on
investments, plus dividends therefore soared to $6.33 billion, or by 46.5 per
cent.
At balance sheet date, the JN Group had $32.6
billion in liquid funds - deployed in a range of government securities and
publicly listed shares. Of the $32 billion, about 11 per cent represented listed
equities.
Interest expenses incurred by the group grew from
$2.36 billion to $3.1 billion, leaving the group with net interest revenue of
$3.19 billion, up from $1.98 billion the previous financial year.
But the depth of the diversification in the
revenue stream of this building is captured blow the net interest line on the
income side of its ledger. Firstly, other operating income jumped from $1.2
billion in 2002/03 to $1.93 billion during the year under review. The bulk or
$500 million consisted of fees and commission income, with foreign exchange
gains contributing $667 million, and gross underwriting income 4275 million.
Unspecified income amounted to $491 million.
Operating expenses climbed from $2.1 billion to
$2.9 billion, but with revenue growth outstripping the increase in costs,
operating surplus doubled from $1.05 billion to $2.21 billion.
There was still additional income: unrealised
foreign exchange gains, gains from disposal of investments and share of profits
of associates contributed a combined $600 million to the group's revenue.
Surplus before taxation was therefore $2.8 billion, compared with $1.78 billion
the year earlier.
During the year under review, the group had an
effective tax rate of 26 per cent, compared with 21.4 per cent the previous
year. Net profit therefore amounted to $2.05 billion up from $1.38 billion. The
building society accounted for the bulk of the net profit - some $1.5 billion,
with subsidiaries contributing $483 million, and associates $66 million.
At balance sheet date, Jamaica National
reported total capital base of $10.4 billion up from $6.8 billion the previous
year. The net profit therefore represented a return on average capital of 24 per
cent.
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