The analysts of Taking Stock with Kalilah Reynolds say NCB’s decision not to pay out regular dividends for the time being is a smart move for the long term.

NCB is Jamaica’s largest commercial bank, and is listed on the Main Market of the Jamaica Stock Exchange (JSE). 

The analysts were responding to a recent opinion article published by Our Today which chided Jamaica’s largest bank for not paying shareholders a regular dividend in three years. The company did, however, pay an interim dividend of $0.50 per share in May 2021.

Investment Research and Sovereign Risk Analyst at JMMB Group, Leovaughni Dillion, said the decision not to pay dividends is a precautionary move, given the relatively uncertain economic climate. 

“If you are of the view that there’s a chance of a recession, it would be prudent for them to hold onto capital. What you don’t want to do is pay out some dividends now and there’s a liquidity issue in the near term and then you have a problem,” he said. 

“With the financial system, one of the things that keeps it together is confidence. Now, if Jamaica’s largest bank has issues, even if other banks are not having issues, it creates a problem,” he added.

Dillon noted that with interest rates rising globally, the value of many of NCB’s longer-term assets such as bonds would have changed. He pointed out that according to NCB’s most recent financial report, its equity dropped 7% for the year 2022 compared to 2021. 

“If there is a global decline in asset prices like bonds, especially in this environment of rising interest rates, what can happen is that you have a big draw down in equity,” he explained.

“That’s the reason why the bank’s equity decreased although they didn’t pay a dividend and earnings are up. It’s really because of the change in the value of those assets,” Dillon added.

He said that long-term, it is a good decision to hold on to capital to ensure that if economic conditions worsen, the bank can smoothly continue its operations.

Focus on capital gains

Furthermore, Dillon said that while dividend payments are important, investors will see the best long-term returns through capital appreciation. 

CEO of Profit Jumpstarter, Keisha Bailey, echoed similar sentiments.

“Yes the dividends are great but they will not make you wealthy. What makes you wealthy is capital appreciation,” Bailey said.

Capital appreciation is when the price of a stock goes up.

Bailey explained that this is influenced by growth in the company’s profits. 

She pointed out that NCB’s subsidiary, TFOB, which operates the digital wallet Lynk, was recently granted permission to act as a remittance agency. This will bring NCB into the lucrative remittance industry. 

“So that’s what we need to focus on; are we getting strong numbers from NCB? What does the future look like for NCB because that’s really what creates wealth,” Bailey added. 

NCB’s numbers

For the financial year ending September 30, 2022, NCB recorded consolidated net profits of $39.9 billion, almost double the prior year. 

According to the company, one of its primary drivers for growth was its insurance segment, primarily life and health insurance.

NCB said net revenues from insurance amounted to $42.3 billion, an 84% increase over the prior year.

Net revenues from its banking and investment segment contributed $107.3 billion to the group’s overall revenue.

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