Tue | Jan 18, 2022

Clarien weighing less on parent NCB Financial

Published:Wednesday | December 8, 2021 | 12:06 AM

More customers are making good on loan repayments at Bermuda-based Clarien Bank, with loan restorations at a high and new impairments dropping to pandemic lows – which benefits parent company NCB Financial Group.

Clarien operates from an island that is one-tenth the size of Kingston, but due to its relatively large loan portfolio and hard-currency earnings, its financial performance can have an outsize impact on NCB Financial Group, a large financial conglomerate, which owns Jamaica’s top commercial bank.

Clarien accounts for about 20 per cent of NCB Financial Group’s total loans, but 38 per cent of its parent’s impaired loans. Of the $32.5-billion impaired loans reported by NCB Financial in 2021, Clarien accounted for $12.5 billion.

On the positive side, Clarien’s impairments have been shrinking. They accounted for over half of NCB Financial’s non-performing loans, or NPLs, in 2019, then fell to 46 per cent in 2020, and further to 38 per cent this year, according to Clarien’s latest regulatory filings to September, and the September 2021 year-end financial results from NCB Financial.

Impaired loans, or NPLs, are loans that are unserviced by borrowers for three or more months. Additionally, credit card receivables that are 180 days past due are automatically written off.

NCB Financial Group, which acquired a majority stake in Clarien Bank in December 2017, knew that it would need to reduce the size of the Bermudan bank’s impaired loans.

On a percentage basis, Clarien’s NPLs are still nearly twice the size of its parent. Its impaired loans are now estimated at US$80.3 million on net loans of US$712 million, or 11 per cent of the loan portfolio; while NCB Financial’s impaired loans, at $32.5 billion, are 6.2 per cent of its $523-billion loan portfolio.

Clarien had made progress on eliminating some NPLs between 2017 and 2019, but the COVID-19 pandemic erased most of the gains. Last year, the bank offered two loan moratoriums, thereby allowing customers the deferral of payments to cool the growing pace of loan defaults.

During 2021, Clarien restored US$9.9 million in loans to non-default status, which added to the US$17 million restored to good health in 2020, and the US$3 million in 2019.

There was also a reduction in new impaired loans during this year, which fell to US$3.4 million, from US$14.4 million, in 2020, and US$20.1 million in 2019.

The reduction in new impairments and write-backs still need more time to make a deeper impact on the overall existing pool of impaired loans. Proportionately, the impaired loan balance hovers at 11 per cent of total loans, which is only marginally improved from the 12 per cent ratio in 2020 and 2019.

Comparatively, Clarien’s impaired loans peaked at US$103.9 million in June 2016, then representing 13.7 per cent of its total loan book.

NCB Financial holds a 50.1 per cent equity stake in Clarien, while Edmund Gibbons Limited retains 31.98 per cent and Portland Private Equity holds 17.92 per cent. Both NCB and Portland Private Equity are controlled by investor Michael Lee-Chin.