CMMB in line for steady growth, returns

Capital and Credit Merchant Bank (CCMB) is the third Jamaican company to offer shares on the Trinidad and Tobago Stock Exchange (the other two being Jamaica Money Market Brokers and Grace Kennedy). “Directors and Management are committed to pursue the strategic option of raising additional capital in the market to facilitate the continued growth, development and expansion of the Bank during 2003.”  In April 2003 the Bank offered a prospectus for additional share issue and offer of sale on the Jamaican Stock Exchange with a promise to “seek a listing of its shares on the Trinidad and Tobago Stock Exchange shortly after the offer closes.”

The prospectus offered the issue of 82 million new shares and the sale of 98 million or 19.6% of the ordinary stock units owned by the Bank’s Holding Company - Capital & Credit Holdings Ltd (CCHL).  The combined result reduced CCHL’s shareholding from 100% to 67% in CMMB. (Proceeds from the issue of 82 million new shares were for CMMB, and revenue from the sale of 98M for CCHL.) Some of the J$395 million raised from the Initial Public Offering will be used to effect the bank’s plan to “heighten its presence in the marketplace and significantly upgrade its network..... open a full service branch on Montego Bay during 2003.... Other strategic plans include utilizing information technology to offer greater convenience and accessibility to its customers, including sophisticated institutional customers whose demands require that the quality of service and the diversity of products offered by the bank keep pace with the opportunities that technological developments offer.”

In 2002 the bank changed its strategy to expand its core banking business and by extension reduced income from security and foreign currency trading.  In 2002 total revenue from net interest income — loans, advances, investment securities, customer deposits and interest on margin loans — contributed 46.5% of revenue while fees and other income — gains from securities, foreign currency trading, corporate finance fees and dividend activities — contributed 53.5%.  This is a huge shift from the 2001 position which reflected contributions of 9.7% and  90.3% respectively.   These ratios will revert in favour of fees and other income as 2003 half year after tax profits of J$179 million were “earned primarily from securities trading, stock-broking activity and foreign exchange trading.” To accelerate the growth in net interest income the bank made a change in the portfolio mix of interest earning assets which saw an acceleration of “the growth in the foreign currency denominated portfolio which provided superior returns to Jamaican denominated assets.”

The J$587 million or 6.5% reduction in Off Balance Sheet Assets (securities purchased either on behalf of or for trading to clients) recorded at December 2002 and the 248% increase in On-Balance Sheet Assets are other results of the changed strategy. The investment portfolios represent the main areas of growth, as the acquisition of ‘AAA’ rated US Government Agency Securities drove total investment from J$4.15 billion in 2001 to J$19.16 billion in 2002. Gross Loans and Advances increased significantly by 493 million or 48.02 percent as at year end 2002.”  This positioning mitigated the effects of the depreciation of the Jamaican dollar and the spike in local interest rates experienced in the first 6 months of 2003. As a result there were mixed effects on business lines but on the whole has not affected CCMB’s results as at June 2003. Operating costs increased in 2002 by 22.89% over the 2001 figures as the bank sought to “improve processing efficiency and the quality of our customer service delivery” and hired fourteen additional persons, to bring the staff complement to 84 persons. Costs were at J$198 million (June 2003) and are trended to accelerate in the 2nd half of the year to reflect listing on the T&T Stock Exchange and pursuit of strategic objectives. Efficiency ratios which measure the relationship of expenses incurred to earn a dollar of net revenue continue to improve.  This reflects both controlled  expenditure levels and implementation of technology to increase efficiencies.  In 2001 the ratio stood at 50.5, improved to 47.5% in 2002 and at June 2003 was at 44.8%.