Jamaica’s largest banking conglomerate, NCB Financial Group, believes it has found the right formula for its digital wallet as a market disruptor that won’t end up cannibalizing its own business.
The wallet known as Lynk mainly offers free payment services that sometimes compete with the bank it belongs to, NCB Financial chairman and chief executive Patrick Hylton said Friday during an investor briefing for discuss the company’s latest earnings report.
The fees for NCB are a multi-billion dollar business, representing inflows of $28 billion for the year ending September 2021, and nearly $26 billion, so far this fiscal year for the nine-month period. month ending in June.
“We will disturb each other rather than be disturbed,” Hylton said. “We learned from Blockbuster and Kodak film. Therefore, we are determined that the transformation of our business model remains within our control,” he said.
Decades ago, the growth of the Internet and online streaming services disrupted Blockbuster video rentals in the United States. On the other hand, digital cameras have disrupted the film branch of the American company Kodak. In recent years, however, it has found a niche market for mainstream cinema.
Lynk was launched by National Commercial Bank Jamaica last year and has since had 120,000 accounts with 2,000 merchants. The company that operates Lynk is run by Vernon James, the former director of NCB Insurance. Hylton said later this year, Lynk will begin expanding its merchant payment solutions and e-commerce options.
The conglomerate, which is among the largest in the Caribbean, has an empire to protect. It made a net profit of $10.6 billion in the June quarter on $36.3 billion in revenue. That was more than double the $4.7 billion profit a year earlier, compared to $32.1 billion in revenue.
Since the start of the pandemic, there has been a move towards more digital payments. This rise saw a simultaneous decline in other traditional areas, for example the use of checks, which at one point had halved, according to data from the Bank of Jamaica. NCB is currently the only bank with a wallet in the market, making it the only one of eight currently able to handle transactions using Jamaica’s new digital currency, JamDex, but others are preparing to launch their own. .
Hylton expects financial technology or fintech apps like Lynk to reduce the cost of doing business while improving the quality of service.
“Many of these transactions on Lynk are free, which reduces service costs for both institutions and the consumer,” Hylton said. “From a convenience point of view, they can do [transactions] anywhere and anytime and don’t have to wait for a branch to open. So we see significant changes. I see him as an enabler of future trends and the path we need to follow.
NCB Financial Group is now valued at $2.02 trillion in assets, which includes a loan portfolio of $559 billion. Loans, which are a bank’s daily bread, rose 11% year-on-year, while non-performing loans fell to 5.3% from 6.0% a year earlier.
The group’s investment securities portfolio remains significantly larger than its loan portfolio at nearly $725 billion at the end of June.
Over nine months, from October 2021 to June 2022, NCB Financial reported a profit of $25.9 billion compared to $13.9 billion a year earlier. The breakdown of revenue segments showed a mixed bag, with the business line standing out being “life, health and pensions”. Of the $34 billion in operating profits earned by NCB Financial, the segment accounted for $20.5 billion.
Despite the increase in its profits this quarter, the banking group has again refrained from paying a quarterly dividend to its shareholders, preferring to keep the billions it earns in order to strengthen its equity.
“We consider it prudent to maintain capital levels. I see capital almost as insurance protection for policyholders,” Chief Financial Officer Dennis Cohen said in response to questions about dividends during the investor briefing. .
Since the start of the pandemic, the group has chosen to maintain its capital in the event of uncertainty. But while its cumulative profits have now topped $103 billion — up $13 billion since its last audit — the broader pool of shareholder equity has fallen by around $15 billion over the past nine months through June to reach $146.6 billion.
“The decline was primarily due to a $35.1 billion decline in fair value reserves due to unrealized mark-to-market losses in the investment portfolio due to higher interest rates,” NCB Financial said in its earnings reports.
The banking conglomerate ended the quarter with cash of more than $197 billion, up from $189 billion a year earlier.