JMMB Group Records J$4.8B in Profit in Challenging Market Conditions
Regional financial entity, JMMB Group is reporting a dip in its net profit to J$4.8 billion, for the nine-month period ending December 31, 2022. This reflects a 52% falloff in the Group’s earnings year-over-year, having recorded unprecedented profit in the prior year. During the period, JMMB Group also posted operating revenue of J$18.9 billion, a 14% decline, for the comparative period. The Group’s financial performance for the period was impacted by the challenging macro-economic conditions.
In explaining further, Patrick Ellis, chief financial officer at JMMB said, “The Group has seen credible financial performance in this environment that has been characterized by high inflation and rising interest rates, especially in Jamaica and Dominican Republic. This has impacted particularly the investment business line, resulting in falloff in asset prices and the reduction in the liquidity in the market.” He notes that the regional and business line diversification strategy, remains a core contributor to bolster the Group’s financial performance, as seen in the case of the banking business line, which was the largest revenue contributor, accounting for 52% of the Group’s net operating revenue, up from 37% in the prior period. Additionally, the regional diversification strategy continued to reap benefits as Trinidad and Tobago contributed 23% to operating revenue, up from 15% in the prior period.
Due to the delayed publication of Sagicor Financial Company Limited’s (SFC) audited results for the period ending December 31, 2022, the Group did not record any share of profits from its associated company, SFC, in which it has a 23.33% stake. SFC has opted to publish its audited results for the period, utilizing the 90-day provision under the Toronto Stock Exchange (TSX); therefore, these earnings will be reflected in JMMB Group’s year-end results.
The CFO highlighted that the Group’s trading gains totaled, J$3.49 billion for the period, reflecting a 51% decline. This was attributable to the rising interest rates and investors continued de-risking, which resulted in a reduction of demand for emerging market assets, consequently, asset prices fell and trading activity was reduced. This, as compared to the prior year when investor sentiment was high and interest rates were low.
Net interest income saw a 6% decline year-over-year, moving from J$8.98 billion to J$8.44 billion. The Group recorded positive growth in fees and commission, which grew by 16%, over the corresponding period, to J$4.32 billion. This was mainly driven by increased economic activity in all the territories in which the Group operates, as well as significant growth in managed funds, collective investment schemes and capital market activities across the Group. Foreign exchange gains also increased from J$2.0 billion to J$2.47 billion, which reflects a 24% growth in earnings over the comparative period.
At the end of the reporting period, the JMMB Group’s asset base totalled J$640.47 billion, up 4% relative to the start of the financial year. This was mainly on account of a larger loan portfolio which grew by 16% to J$165.98 billion. The credit quality of the loan portfolio continued to be comparable to international standards. Growth in the asset base over the nine-month period was funded in part by increases in customer deposits, repos and multilateral funding. Deposits grew by 8% to J$163.60 billion, while repos increased by 4% to J$309.66 billion
Over the nine-month period, shareholders’ equity decreased by 12% to J$49.53 billion. This was mainly driven by the further decline in investment revaluation reserve, despite the profit posted by the Group since the start of the year.
The Group has maintained its capital adequacy for all individually regulated companies within the Group in keeping with regulatory capital requirements.
As the Group continues on its growth path, it saw an increase in its operational expenses during the period moving from J$13.24 billion to J$14.68 billion. “We see this as an investment in our growth and expansion plans, as these expenses are largely one-offs (as they are project related to facilitate long-term growth) as we implement digital platforms, standardization and set ourselves up for success, we expect over the long-term to see these costs go down as we scale and grow our subsidiaries in the future,” shared Ellis. As a result of the increase in expenses, the Group’s operational efficiency moved from 60% to 78%.
Keith Duncan, JMMB Group CEO, maintained a positive view of the Group’s financial performance noting that the build-out of the diversification strategy and the leveraging of its ‘smart growth’ initiatives, has delivered credible results and allowed the company to deliver on its major imperatives. He also pointed to the cautiously optimistic outlook for the region within the context of the challenging operational environment, with signs of easing based on the International Monetary Fund (IMF) January 2023 outlook which predicts a marginal improvement in economic growth in Latin America and the Caribbean. Additionally, both the central banks in Jamaica and the Dominican Republic have paused rate hikes, subject to further data, while the US Federal Reserve Bank has continued to signal further rate hikes, at a slower pace. This, coupled with the fact that the Central Bank of Trinidad and Tobago (CBTT) has not increased interest rates throughout the high global inflation period. “We therefore expect to see more favourable market conditions (over time) for financial services and for our clients, especially on the loan side where interest rates will likely trend down. As such, we look forward to a more accommodative environment for trading and a normalizing of especially the investment business line in the medium term, resulting in an improvement in our overall financial performance.”
In line with its business line and geographic diversification strategy, JMMB Group expects to further benefit from its shareholding of 23.33% in SFC, which makes JMMB Group the largest single shareholder, as that entity, has entered into a definitive agreement to acquire Ivari, a leading middle market Canadian life insurer. This transaction is expected to be materially accretive to the JMMB Group and add shareholder value, as Ivari is expected to contribute significantly to SFC's earnings.
Underscoring the major milestones over the quarter, Group CEO outlined, “JMMB Group continues to actively pursue and accelerate its smart growth strategic initiatives over the medium to long-term, in a bid to bolster the Group’s financial performance while adding shareholder value and improving client experience. This strategy is centred on strategic revenue diversification, stronger capital management, and growing core activities in key business lines. As part of this initiative, we have rolled out our point-of-sales payment solutions and our online banking services in Dominican Republic, with the current JMMB Moneyline platform. This forms a part of the Group standardization process to streamline processes, policies and platforms. We will also introduce our remittance prepaid card by the end of the year.” While the Group continues to accelerate its digital offerings, it has expanded its branch network with the opening of a new location, earlier this month, in Punta Cana in Dominican Republic.
The JMMB Group top exec also shared that increased strategic focus will also be placed on capital efficient growth from lending, as well as opportunistic growth in the investment portfolio, as result of the high interest rate environment, while bolstering its innovative solutions to ensure a win-win partnership for stakeholders, as these solutions are geared towards meeting the needs of clients to achieve their personal and business goals. He underscored that in keeping with the JMMB Group Vision of Love, the company remains committed to serve with a ‘client first’ approach and introduce solutions in line with its core values of best interest for all.