Monday, January 22, 2018

Non-performing loans grow

FirstCaribbean International Bank Limited.

In this week's article we examine the performance of Barbados's FirstCaribbean International Bank Limited, the 2nd largest stock by Market Capitalisation on the Trinidad and Tobago Stock Exchange.

For the three months ended January 31, 2012, FirstCaribbean International Bank Limited (FCIB) reported an EPS of US$0.013 falling 27.8 per cent year on year. This EPS breaks four quarters of consecutive decline in EPS having increased from US$0.002 in the fourth quarter of 2011 due to an increase in Interest Income and decline in Interest Expense for that period.

Year on year, the Interest Income was fairly stable with a marginal decline of 0.1 per cent. Interest Expense on the other hand fell more significantly by five per cent from the fourth quarter of 2011 and 17.9 per cent year on year. The decline in Interest Expense was attributed to reductions in funding costs and expenses related to hedging derivatives.

Operating Income grew by 17.8 per cent as a result of the acquisition of CIBC Bank and Trust Company (Cayman) Limited and CIBC Trust Company (Bahamas) Limited. The acquisition was also responsible for the increase in Operating Expenses by three per cent some of which was reported to have been offset by strong focus on controllable expenses. Overall the Company reported an improvement in the efficiency ratio having decreased from 62.5 per cent in Q1 2011 to 59 per cent in Q1 2012. Local peers have managed to achieve efficiency ratios in the range 44 per cent to 50 per cent.

FCIB's loan loss expense registered a significant increase of 135 per cent to US$35M year on year and continuing on its fifth quarter of consistent increase as illustrated in Exhibit 1. The reason accredited to this was a higher incidence of non-performing loans as well as continued declines in collateral values for real estate. On an annual basis loan loss expense has been on a persistent upward trend since 2005.

Overall the Company earned Income before Tax of US$21M and Net Income of US$21.1M due to a tax credit received, year on year declines of 34 per cent and 24 per cent respectively.

In examining the Balance Sheet, Assets are reported to have grown by 2.2 per cent to US$11.4B, Liabilities by 18 per cent as a result of increases in Customer Deposits of US$1.4B and Shareholders' Equity by four per cent.

The Group must continue to improve its efficiency ratio, focus on reducing its loan loss expense and seek to generate growth. Like many of its Caribbean counterparts, FCIB is being challenged by low interest rates and declining demand for loans. FCIB faces the additional challenge of operating in Tourism driven economies as illustrated in Exhibit 2, which continue to suffer as a result of economic conditions internationally. Barbados the largest contributor to Revenue is expected to grow by 1 per cent or less according to the country's Central Bank forecasts. The Central Bank Governor of The Bahamas, the second largest revenue generator for FCIB, projected Bahamian economic growth of 2-2.5 per cent for 2012 stating that it remained "achievable" despite the gathering downside risks. Investors should be cautious as to the probability of these growth rates materialising.

In terms of valuations, the stock is trailing at a P/E of 32.5 times significantly above its 5 year average of 15.4 times as well as the market average and those of locally listed Banks. Fundamentally no significant turnaround in the economic climate or Company operations is seen in the Short term. Based on these BOURSE maintains a SELL.

Other News

Supreme Ventures Limited received shareholder approval to delist from the Trinidad and Tobago Stock Exchange (TTSE) effective and this was further approved by the TTSE. Trinidad and Tobago Shareholders are advised that the Company offers two options:

(i) You can withdraw your shares from the Trinidad and Tobago Central Depository (TTCD) and request a physical stock certificate in your name.

(ii) Transfer your shares from the TTCD to the Jamaican Central Depository (JCD) at the expense of SVL (US$25.00 per account), as the share would continue to be traded in Jamaica.

If neither option is chosen before March 20, 2012, SVL's registrar will issue a share certificate replacing holdings at TTCD.