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Fitch Downgrades National Commercial Bank Jamaica's Ratings; Outlook Negative

Saturday, 05 December 2009 00:59

Source: Business Wire

 Fitch Ratings has downgraded the ratings of Jamaica-based National Commercial Bank Jamaica Limited (NCBJ) as follows:

--Long-term foreign and local currency Issuer Default Rating (IDR) to 'CCC' from 'B';
--Short-term foreign and local currency IDR to 'C' from 'B'
--Support Rating to '5' from '4';
--Individual Rating to 'D/E' from 'D'; Rating Watch Negative;
-- Support floor to 'CCC' from 'B'.

Fitch has also downgraded the ratings of Jamaica Diversified Payments Company, a future flow remittances securitization issued by NCBJ, to 'BB' from 'BBB-'.

The Outlook on all ratings is Nnegative and in line with Fitch's view of the sovereign's creditworthiness. Future rating movement will be highly contingent upon a change in this view, given the bank's sizeable sovereign exposure.

On Nov. 24, 2009, Fitch downgraded Jamaica's sovereign long-term IDR to 'CCC' and the country ceiling was downgraded to 'B-', reflecting the country's increased macroeconomic pressures and a sharp fiscal deterioration. This has resulted in unsustainable debt dynamics and heightened the risk of some form of debt restructuring. While the current account deficit has improved, the capital account of the balance of payments is highly dependent on disbursements from the IMF and multilaterals. Delays in negotiating a critical IMF stand-by continue to weigh on investor confidence (for further information please see 'Fitch Downgrades Jamaica's IDRs to 'CCC'; Outlook Negative' released on Nov. 24, 2009).

Additionally, with a sluggish recovery expected in the U.S. prospects for future GDP growth are highly uncertain as Jamaica is highly dependent on this country for its tourism and overseas workers' remittances. Mining, tourism related flows and family remittances account for a large percent of the DPR flows. As a result, collections for the DPR program have been negatively impacted. Compared to 2008, the volume of collections has decreased approximately 37%. However, Fitch notes that despite the decline in flows, current maximum debt service coverage levels remain strong, greater than 30 times monthly requirements and 35 times quarterly requirements, slightly below the initial coverage levels of July 2007 when series 2007-1 was issued.

NCBJ's ratings reflect its strong domestic franchise, adequate profitability, good asset quality and capital levels. But NCBJ's high exposure to sovereign and large corporate loans as well as the negative effects of a volatile operating environment limit the bank's ratings. At the end of June 2009, total government exposure represented about 48% of total assets and 4.5 times (x) equity. A further deterioration of the credit quality of the sovereign and/or a coercive debt exchange of government debt could materially affect NCBJ's financial profile and capital position, due the size of its exposure, a fact that is incorporated in the Negative Outlook of its IDRs.

NCBJ is the largest bank in the system in terms of assets with around 38% at the end of June 2009. In 2002, the Jamaican government sold a majority stake in the bank to Advantage Investment Corporation (AIC), one of Canada's largest privately held mutual fund management companies.

The future flow rating actions reflect the application of

Fitch's current criteria which is available at 'www.fitchratings.com' and specifically include the following reports:

--'Future Flow Securitization Rating Criteria' (Oct. 26, 2007)
--'Global Structured Finance Rating Criteria' (Sept. 30, 2009).