Fitch Revises Outlook on National Commercial Bank of Jamaica to Stable

Wed May 21, 2014 12:25pm EDT

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(The following statement was released by the rating agency) NEW YORK, May 21 (Fitch) Fitch Ratings has affirmed the long-term foreign currency and local currency IDRs for National Commercial Bank Jamaica Ltd. (NCBJ) at 'B-' Fitch has also revised NCBJ's Rating Outlook to Stable from Negative. Additionally, Fitch has affirmed NCBJ's Viability Rating (VR) at 'b-' and revised its Support Rating Floor (SRF) to 'B-' from 'CCC.' A full list of rating actions is at the end of this rating action commentary. Fitch revised the Outlook on NCBJ's long-term IDRs due to its resilient financial performance under sovereign stress. NCBJ's 'B-' SRF is now pari passu with Jamaica's long-term IDR due to the bank's systemic importance. KEY RATING DRIVERS - IDRS AND VR The operating environment has a high influence on National Commercial Bank Jamaica Ltd.'s (NCBJ) Viability Rating (VR). Jamaica's small and weak economy limits the bank's overall financial profile relative to higher rated emerging market peers (universal/commercial banks). Asset quality also weighs heavily on the bank's ratings due to weaker loan quality ratios and still high asset concentrations, particularly its exposure Jamaican government. However, Fitch views the bank's capitalization as sufficient for its risk profile. Investments and loans to the Jamaican government, public sector entities, or entities that have a government guarantee represent a declining, but still significant share of NCBJ's total assets (48%, or 2.96x equity) as of fiscal year ended September 2013 (FYE13). Fitch views this concentration as NCBJ's primary source of credit risk given the sovereign's speculative grade rating (long-term IDR rated 'B-' with a Stable Outlook). The Outlooks on NCBJ's long-term IDRs are now in line with those of the sovereign's IDRs. The bank's loan quality indicators have improved since FY11-FY12 when a relative few, large credits affected the bank's impairment ratio. In addition, loan loss reserves are adequate, representing more than 100% of nonperforming loans as of March 2014. However, loan quality indicators continue to compare unfavourably with peers. Moreover, loan concentration, which has contributed to loan quality volatility in prior periods, continues to be material, as is typical in a smaller economy. NCBJ's capital compares favourably to international peers, aided by an improving rate of internal capital generation and a policy limiting dividend pay-outs. At March 2014, tangible common equity represented 15.2% of tangible assets. However, Fitch views NCBJ's capitalization as adequate in light of its exposure to the Jamaican government. NCBJ's financial performance has proven resilient to significant sovereign stress, thanks to its scale, stable and low cost funding and improving diversity of local income sources. Greater cross-selling to existing clients and the acquisition of a general insurance company in FY13 supported non-interest income growth. Fitch expects this trend to continue over the rating horizon. RATING SENSITIVITIES - IDRS AND VR NCBJ's ratings are sensitive to a change in Fitch's view of the sovereign given the bank's sizable sovereign exposure. In addition, factors that could trigger a downgrade include a marked deterioration in financial performance, including a decline in asset quality, weakened profitability that pressures the bank's capital position, or sudden deposit instability, to a level that is inconsistent with its current peers (emerging market commercial banks with a VR of 'b-', 'b' or 'b+'). KEY RATING DRIVERS - SUPPORT RATING AND SUPPORT RATING FLOOR The sovereign's speculative grade rating limits the government's capacity to provide support, resulting in a support rating of '5'. However, the Support Rating Floor of 'B-' reflects NCBJ's systemic importance, as well as the Jamaican government's provision of extraordinary support to the banking system during prior crises. RATING SENSITVITIES - SUPPORT RATING AND SUPPORT RATING FLOOR Any changes to the bank's Support Rating and Support Rating Floor will depend on future sovereign rating actions. Currently, the Outlook on Jamaica's long-term local- and foreign foreign-currency IDRs is Stable. The rating actions are as follows: National Commercial Bank Jamaica Ltd. --Long-term foreign and local currency IDR affirmed at 'B-'; Outlook to Stable from Negative --Short-term foreign and local currency IDR affirmed at 'B'; --Viability Rating affirmed at 'b-'; --Support Rating affirmed at '5'; --Support floor revised to 'B-' from 'CCC'. Contact: Primary Analyst Mark Narron Director +1 212 612 7898 Fitch Ratings Inc., 33 Whitehall Street, New York, NY 10004 Secondary Analyst Andres Marquez Director +57 1 326 9999 Committee Chairperson Alejandro Garcia Senior Director +52 81 8399 9100 Media Relations: Elizabeth Fogerty, New York, Tel: +1 (212) 908 0526, Email: elizabeth.fogerty@fitchratings.com. Additional information is available on www.fitchratings.com Applicable Criteria and Related Research: --'Global Financial Institutions Rating Criteria' (Jan. 31, 2014); --'Fitch Upgrades Jamaica's IDRs to 'B-'' (March 5, 2014); --'Jamaica Hits Fiscal Target, Sustained Effort a Challenge' (May 2, 2014). Applicable Criteria and Related Research: Global Financial Institutions Rating Criteria here Additional Disclosure Solicitation Status here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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