Capital & Credit Merchant Bank Ltd. is meeting the challenges of a tight economic environment head-on by recording After-Tax Profits of just over J$346 million for the first quarter of 2006. This figure is on par with the J$363 million recorded for first quarter 2005.
This solid performance, in the context of declining yields locally and rising interest rates in the United States, is attributable to the financial strategy of building its Non-Proprietary income streams, combined with re-structuring its Balance Sheet, which the Group initiated in mid-2005. As a result, the Capital & Credit Group was able to maintain its Net Interest Income recording J$264 million for the first quarter this year, compared to J$302 million for first quarter 2005.
Speaking to the Organization’s strategy, Deputy Group President & Bank CEO, Curtis Martin, states that, “the special emphasis at this time is the selective acquisition of higher-yielding assets, while managing the cost of acquired funds.”
The Bank and its subsidiaries earned J$397 million in Other Revenues for the first quarter this year, with the primary contributor being Net Gains on Securities Trading (J$325.5 million), in addition to earnings from other sources, including Foreign Exchange Trading and fee-generation. The Group has therefore sustained its income generation with J$661 million in Net Interest Income and Other Revenues.
Cost containment strategy reaping rewards
To meet the challenges of 2006, Mr. Martin says “Capital & Credit’s Income Diversification and Cost Containment strategy that was first announced in May 2005 is already producing positive results.”
Efficiency, measured as a percentage of Non-Interest Expenses to Net Interest Income and Other Revenues improved to nearly 35%, compared to 37% for first quarter 2005 and 39.6% for financial year 2005, while Non-Interest Expenses for the first quarter 2006 went down to J$230 million – a J$38 million improvement over the J$268 million recorded for the first quarter of 2005.
A significant contributor to this positive performance is the elimination of the Loan Loss provision of J$45.6 million, as the effort continues to ensure collections on all non-accrual loans.
The Group has trimmed the size of its overall Balance Sheet from J$60.5 million to nearly J$53 million in keeping with the decision taken mid 2005 to sell low-yielding assets. Consequently, Capital & Credit is engaged in obtaining higher-yielding assets, while maintaining an optimal risk profile.
Total Stockholders’ Equity at the end of the first quarter this year stands at J$5 billion, an increase of nearly 9% since December 2005. This strengthening of its Capital Base has been facilitated through the retention of Earnings and the reduction of the Negative Fair Value Reserve from nearly J$207 million at the end of 2005, to just over J$142 million at the end of first quarter 2006. This performance was facilitated by improved market instrument value and the subsequent marked-to-market recording of the available-for-sale investment portfolio.
In addition to the Net Profit for the first quarter of J$346.3 million, the Group’s Capital Base was enhanced by the transfer of J$432 million from un-appropriated Profit to Retained Earnings Reserve, thus increasing its Tier 1 Capital to J$3.55 billion. Regulators worldwide regard Tier 1 Capital, as the fundamental measure of a Bank’s financial strength and consists of the types of financial capital considered the most sustainable, primarily equity. Equity capital includes instruments that cannot be redeemed at the option of the holder.
Chairman of the Capital & Credit Financial Group, Ryland T. Campbell, states that “The boosting of Capital & Credit’s Tier 1 Capital enhances the Capital Management Programme and provides greater scope for expansion. He further adds that “Just as importantly, it also ensures that the Regulators’ benchmarks for capital adequacy are met and superseded.”
Mr. Campbell notes that as part of the consolidation strategy, the Group’s current process of new technology acquisition will “improve not only its efficiency, but also the Group’s capability, particularly in respect of customer service and access; product origination and competitiveness; as well as improving corporate reporting, planning and research.”
As the 2006 financial year progresses, Mr. Campbell expressed confidence “that the initiatives currently being undertaken by Capital & Credit Merchant Bank and its subsidiaries will ensure the continued, but even growth in our profitability for the year 2006.”
