Fitch Upgrades National Commercial Bank Jamaica’s Individual Rating to ‘D’

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has upgraded Jamaica-based National Commercial Bank Jamaica Limited (NCBJ) Individual Rating to 'D' from 'D/E'. Fitch has simultaneously affirmed NCBJ's other ratings as follows:

--Long-term foreign and local currency Issuer Default Ratings (IDR) at 'B-';
--Short-term foreign and local currency IDR at 'B';
--Support rating at '5';
--Support floor at 'B-'.

The Rating Outlooks for the long-term IDRs are Stable and in line with Fitch's view of the sovereign's creditworthiness.

Future rating actions will be highly contingent upon a change in Fitch's view on Jamaica's sovereign creditworthiness given the bank's sizeable sovereign exposure, which reached 59% of total assets and about four times equity at fiscal year-end 2010 (FYE10). Additionally, downward pressure on the ratings could return if there was an unexpected material deterioration of asset quality or capitalization ratios.

The upgrade of NCBJ's Individual Rating reflects the bank's improved financial performance against a back-drop of economic crisis, high market volatility and participation in the Jamaican debt exchange (JDX). Sustained growth of the bank's profitability has contributed to strong internal capital generation and increased NCBJ's total regulatory capital ratio to 16% at FYE10 from 14.6% at FYE09.

A strong domestic franchise, stable profitability and adequate capitalization support the current ratings of NCBJ. Nevertheless, NCBJ's ratings remain constrained by high exposure to the Jamaican public sector and large corporate loans, as well as a challenging operating environment. While the bank's Support rating is constrained by the sovereign's weak credit profile, the Support floor of 'B-' indicates Fitch's view that NCBJ's systemic importance makes the government's propensity to support the bank high.

NCBJ's strategy of reducing funding costs prior to the JDX and improving efficiency more than compensated for lower interest and trading income, underpinning a steady improvement in net income over the past five years. As a result, the bank's ROAA improved to 3.4% at FYE10 from 2.8% at FYE06.

Sustained healthy profitability combined with a moderate cash dividend payout policy has resulted in a steady improvement in NCBJ's capitalization. The bank's equity/assets ratio is strong relative to the Jamaican banking system average and to most internationally rated peers (banks in a similar operating environment with a long-term IDR of 'B-/B/B+'). Almost all of NCBJ's capital is Tier I. High Tier 1 capital combined with the bank's increased exposure to the public sector, led to an improvement in Fitch's core capital/weighted risks ratio to 42.9% at FYE10 from 33.7% at FYE09.

Although NCBJ's asset quality indicators deteriorated slightly in FY10 due to the ongoing recession and a seasoning of the loan portfolio, these remain in line with internationally rated peers. The bank's impaired loans/total loans ratio increased to 3.2% at FYE10, while reserves for impaired loans covered 105% of impaired loans. Nevertheless, lending concentration remains high relative to peers.

NCBJ's strong franchise and conservative risk management should allow the bank to continue weathering its volatile operating environment.

NCBJ is the largest bank in the system in terms of assets with more than 30% of market share in recent years. In 2002, the Jamaican government sold a majority stake in the bank to Advantage Investment Corporation (AIC), one of Canada's largest privately held mutual fund management companies.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:
--'Global Financial Institutions Rating Criteria', Aug. 16, 2010;
--'Jamaica: Full Rating Report', Feb. 15, 2011.

Applicable Criteria and Related Research:
Global Financial Institutions Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=547685
Jamaica
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=539285

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Fitch Ratings
Primary Analyst:Theresa Paiz Fredel, +1-212-908-0534
Senior Director
Fitch, Inc.
One State Street Plaza
New York, NY 10004
or
Secondary Analyst:Santiago Munoz, +57-1-326-9999
Director
or
Committee Chairperson:Franklin Santarelli, +1-212-908-0739
Managing Director
or
Media Relations, New York:Brian Bertsch, +1-212-908-0549
[email protected]

Source: Fitch Ratings