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NCB Financial reclassifies investments to bolster capital

The focus on capital adequacy by large banking conglomerate NCB Financial Group resulted in it reclassifying certain investment assets to retain value.

“We are living in uncomfortable times,” said President and CEO Patrick Hylton during an investor briefing on Friday.

“We remain vigilant in risk management practices ensuring that we remain strong and stable and capable in the face of any changes,” said Hylton.

On Friday, NCB Financial shares dipped 3.8 per cent to $72, but remain north of their one-year low of $67.

The banking group’s capital was estimated at $229 billion as at end-March, up from $202 billion a year earlier, but it falls to $176 after discounting the portion attributable to non-controlling interests.

Its capital as a proportion of total assets stands at 10.7 per cent, but net of non-controlling interests, the ratio falls to 8.25 per cent.

Conglomerates would prefer to have capital at double-digit levels to defend against shocks.

Denis Cohen, chief financial officer and deputy CEO at NCB Financial, said capital and risk management have become a priority for the group.

“We are certainly giving it a lot more priority today than was the case before,” Cohen said at the briefing.

“In the last quarter, NCB Financial reclassified certain assets [in particular] investment securities in the banking group. That was done at the conclusion of a study … that confirmed that the treatment of those assets were not appropriate for the business model. It resulted in a saving in terms of capital utilisation,” he said.

The reclassification, plus, a reduction fair value losses, contributed to a five-per-cent improvement in the company’s capital base in the December quarter.

“We are also looking at more granular details of other assets,” said Cohen.

“There are groups of assets that are treated in a particular classification, but when you go into the details, we realise that there are components within that group which may require a lower capital allocation. That’s an ongoing process,” he said.

In the January to March quarter, NCB Financial made net profit of $5 billion, down from $9.9 billion in the comparative period in 2022.

Total assets improved by four per cent to $2.14 trillion, inclusive of a loan portfolio valued at $596 billion. Non-performing loans also fell from 5.5 per cent of total loans to 4.1 per cent.

NCB Financial’s board continues to hold off on paying a dividend as part of the measures it’s taking to preserve capital.

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