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Fitch Affirms National Commercial Bank Jamaica Limited at 'B'; Outlook Stable
February 24, 2017 / 7:26 PM / 10 months ago

Fitch Affirms National Commercial Bank Jamaica Limited at 'B'; Outlook Stable

(The following statement was released by the rating agency) NEW YORK, February 24 (Fitch) Fitch Ratings has affirmed National Commercial Bank Jamaica Limited's (NCBJ) ratings as follows: --Long-term foreign and local currency IDRs at 'B'; Outlook Stable; --Short-term foreign and local currency IDRs at 'B'; --Viability Rating at 'b'; --Support Rating at '4'; --Support Rating Floor at 'B'. KEY RATING DRIVERS IDRS and VR The bank's IDRs and VR reflect the high influence of the operating environment given its substantial exposure to the sovereign as well as its reach into all major sectors of the Jamaican economy through its diverse corporate and retail banking, insurance and securities services. As a result, NCBJ's IDRs are in line with those of the sovereign ('B'; Outlook Stable). NCBJ's capital position represents a relative strength, underpinned by moderate asset growth, stable earnings, a reasonable dividend distribution policy, as well as stringent local capital requirements. At September 2016, Fitch estimated NCBJ's consolidated Fitch Core Capital at 24.1% of adjusted risk weighted assets, well above the peer median. The Bank of Jamaica requires that NCBJ maintain a regulatory capital ratio of 12.5% compared to the 10% regulatory minimum, due to its systemic importance (42.9% commercial bank market share by assets at September 2016). In addition, contrary to Fitch or Basel standards, local regulation excludes retained earnings from qualifying capital. In terms of financial performance, NCBJ's has successfully adapted to a steadily pressured net interest margin, relying increasingly on fee, commission and premium income. Together, non-interest income grew to 32.7% of gross revenues during fiscal year 2016 (31.5% during fiscal year 2015). NCBJ's administrative expenses registered an uptick as a proportion of gross revenues in 2016, but should decline over the medium term in response to the bank's efficiency strategy. NCBJ's ratings also reflect its solid liquidity profile, surpassing local requirements. At December 2016, liquid assets covered customer deposits by 108.2% and covered estimated short term net cash outflows by 170%. However, a majority of NCBJ's liquid assets consist of speculative grade government bonds that could become illiquid during periods of stress. Asset quality is correlated with the sovereign due to NCBJ's large holdings of government securities, representing approximately 36.7% of consolidated assets at September 2016. In addition, NCBJ's loan quality indicators demonstrate steady improvement but lag behind regional peers. NCBJ's non-performing loans (NPLs) registered a moderate decline to 3.1% of gross loans at September 2016 (5.0% at September 2015). The improvement was driven by the recovery of large legacy problem loans. The bank's loan loss reserves should be viewed in light of non-distributable reserves in the capital account. Taking into account these voluntary reserves, reserve coverage was 136% of nonperforming loans, compared to 118.7% at fiscal year-end 2015. SUPPORT RATING AND SUPPORT RATING FLOOR The Support Rating Floor of 'B' is equalized with the sovereign rating, reflecting NCBJ's systemic importance. However, notwithstanding the government's record of extraordinary support to the banking system during prior crises, NCBJ's Support Rating of '4' reflects uncertainties over the sovereign's capacity to provide future support in light of its high levels of indebtedness. RATING SENSITIVITIES IDRS AND VR The bank's IDRs and VR could be negatively affected by a deterioration in the operating environment or a downgrade of the sovereign rating. In addition, a sustained deterioration in financial performance, including a decline in asset quality, weakened profitability that pressures the bank's capital position, or deterioration in liquidity, could result in a negative rating action. Any potential upgrade of NCBJ's ratings is contingent on a similar rating action on the sovereign. SUPPORT RATING AND SUPPORT RATING FLOOR While Fitch views the sovereign's propensity to provide timely support to NCBJ as high due to the bank's systemic importance, NCBJ's SR has limited upside potential given the weakness of the government's creditworthiness. Contact: Primary Analyst Mark Narron Director +1-212-612-7898 Fitch Ratings, Inc. 33 Whitehall Street New York, NY 10004 Secondary Analyst Larisa Arteaga Director +1-809-563-2481 Committee Chairperson Alejandro Garcia Managing Director +1-212-908-9137 Media Relations: Elizabeth Fogerty, New York, Tel: +1 (212) 908 0526, Email: Summary of Financial Statement Adjustments - Fitch's analysis is at the consolidated level. As NCBJ does not calculate consolidated risk weighted assets, Fitch estimates this figure by referring to the proportion of unconsolidated risk weighted assets to total unconsolidated assets and multiplying this ratio to consolidated assets. This is a conservative approach as the main assets held by NCBJ's subsidiaries are low risk-weighted government paper. Additional information is available at Applicable Criteria Global Bank Rating Criteria (pub. 25 Nov 2016) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here _id=1019544 Solicitation Status here Endorsement Policy 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 WEB SITE AT 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. Copyright © 2017 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch’s factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch’s ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided “as is” without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. 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Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001

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