boj annual 2008

8/6/2019 Boj Annual 2008

1/192

ANNUAL REPORT

2008

Report and Statement of Accounts for the

Year Ended 31 December 2008

8/6/2019 Boj Annual 2008

2/192

Mission

Statement

The mission of the Bank of Jamaica

is to formulate and implement

monetary and regulatory policies

to safeguard the value of the domestic

currency and to ensure the soundness

and development of the nancial system

by being a strong and ef cient organisation with highly motivated

and professional employees

working for the bene t of

the people of Jamaica.

8/6/2019 Boj Annual 2008

3/192

The Governor Bank Of JamaNethersole Place

Kingston, Jamaica, W.I.

31 March 2009

The Hon. Audley Shaw, M.P.Minister of Finance and the Public ServiceMinistry of Finance and the Public Service30 National Heroes CircleKingston 4

Dear Minister:

In accordance with Section 44 (1) of the Bank of Jamaica Act, 1960, I have the honour of transmitthe Banks Report for the year 2008 and a copy of the Statement of the Banks Accounts as at 31 Decemcerti ed by the Auditors.

Yours sincerely,

Derick Latibeaudiere

8/6/2019 Boj Annual 2008

4/192

BANK OF JAMAICA

PRINCIPAL OFFICERS

GOVERNOR The Hon. Derick Latibeaudiere, O.J.

SENIOR DEPUTY GOVERNOR Mrs. Audrey Anderson, C.D.

DEPUTY GOVERNORS1. Mr. Rudolph Muir - General Counsel & Bank Secretary

2. Mrs. Myrtle Halsall - Research & Economic Programming and

Banking & Market Operations Divisions

3. Mrs. Gayon Hosin - Financial Institutions Supervisory Division

4. Mr. Livingstone Morrison - Finance & Technology Division and PaymentsSystem and Risk Management Sub-Division

GENERAL MANAGER

Mr. Kenloy Peart

DIVISION CHIEFS1. Mrs. Natalie Haynes - Banking & Market Operations Division

2. Mr. John Robinson - Research & Economic Programming Division

DEPUTY GENERAL MANAGER Mr. Calvin Brown

8/6/2019 Boj Annual 2008

5/192

FINANCIAL CONTROLLER Mr. Herbert Hylton - Finance & Technology Division

DEPUTY GENERAL COUNSELMr. Randolph Dandy - Legal Department

CHIEF INTERNAL AUDITOR Mr. Horace Lowers - Internal Audit Department

8/6/2019 Boj Annual 2008

6/192

BOARD OF DIRECTORS

THE HON. DERICK LATIBEAUDIERE, O.J.Governor & Chairman

MRS. AUDREY ANDERSON, C.D. Deputy Chairman

MR. DENNIS CHUNG

MRS. SHARON CROOKS

DR. WESLEY HUGHES, C.D.

MR. MARK MYERS

DR. JEFFREY PYNE

8/6/2019 Boj Annual 2008

7/192

CONTENTS

Economic and Financial System Review

1. Overview 1

2. The Financial System 5 2.1. Monetary Policy Management 5

2.2. Money Supply 102.3. Commercial Banks 122.4. Other Financial Intermediaries 21

2.4.1. Financial Institutions Act Licensees 212.4.2. Building Societies 252.5. Development Banks 282.5.1. Development Bank of Jamaica 282.5.2. National Export Import Bank of Jamaica 312.6. Financial Stability Assessment of Deposit-Taking Institutions (DTIs) 33

3. Money Market Operations3.1. Bank of Jamaica Operations 403.2. Interest Rates 43

4. The Stock Market

5. Supervision of Deposit-Taking Financial Institutions

6. Supervision of Cambios and Remittance Companies6.1. Cambios 696.2. Remittance Companies 70

7. External Sector Developments

7.1. International Economic Developments 727.2. Balance of Payments 787.3. Foreign Exchange Management 867.3.1. Bank of Jamaica International Reserves 867.3.2. Reserve Management 907.3.3. The Foreign Exchange Market 92

8. Production and Prices8.1. Production 958.2. Prices 100

9. Public Finance

10. Economic Outlook

Corporate & Administrative Review

11. Banking Services and Currency Operations11.1. Banking Services 11611.2. Currency Operations 117

12. Payments System Developments

8/6/2019 Boj Annual 2008

8/192

13. Financial Legislation

14. Administration

15. Compensation of Senior Executive Management

16. Calendar of Monetary Policy Developments 133

Final Accounts for the Year Ended 31 December 2008

8/6/2019 Boj Annual 2008

9/192

Abbreviations

ABM Automated Banking MachinesACH Automatic Clearing HouseACP African, Paci c and Caribbean (countries)AML Anti-money LaunderingASBA Association of Banking Supervisors of the Americas

BCBS Basel Committee on Banking SupervisionBCP Basel Core Principles for Effective Banking SupervisionBIS Bank for International SettlementsBOJ Bank of JamaicaBOP Balance of Payments

CAR Capital Adequacy RatioCARICOM Caribbean CommunityCD Certi cate of Deposit

CFATF Caribbean Financial Action Task ForceCPC Chief Parliamentary CounselCFT Counter-Financing of TerrorismCGBS Caribbean Group of Banking Supervisorsc.i.f. Cost, insurance and freightCIFTS Customer Inquiry Funds Transfer SystemCPI Consumer Price IndexCSD Central Securities Depository

DJIA Dow Jones Industrial IndexDTI Deposit-taking InstitutionsDVBP Dollar Value of a Basis Point

ECI Export Credit InsuranceEPA Economic Partnership AgreementEU European UnionEWS Early Warning SystemEXIM National Export-Import Bank of Jamaica

FATF Financial Action Task ForceFed Federal Reserve (US)

FIA Financial Institutions ActFID Financial Investigations DivisionFINSTAB Financial Stability DepartmentFISD Financial Institutions Supervisory DivisionFIU Financial Intelligence Unitf.o.b. Free on boardFSC Financial Services CommissionFY Fiscal Year

GCT General Consumption TaxGDP Gross Domestic Product

8/6/2019 Boj Annual 2008

10/192

GFA Gross Foreign AssetsGKMA Greater Kingston Metropolitan AreaGOJ Government of Jamaica

HMF Honourable Minister of Finance

IADB Inter-American Development Bank ICBS International Conference of Banking SupervisorsIFRS International Financial Reporting StandardsIMF International Monetary FundIPCP Index of Primary Commodity PricesIPDF Insurance Policy Discounting FacilityIPI Import Price Index

JBDC Jamaica Business Development CentreJCCUL Jamaica Cooperative Credit Union LeagueJCSD Jamaica Central Securities DepositoryJGA Jamaica Guild of Artists

JNBS Jamaica National Building SocietyJSE Jamaica Stock ExchangeJTB Jamaica Tourist Board

KYC Know Your Customer

LIBOR London Inter-bank Offer RateLRS Local Registered Stocks

MOU Memorandum of UnderstandingMPI Micro-prudential Index

NDA Net Domestic Assets NIM Net Interest Margin NIR Net International Reserves NPL Non-Performing Loans NROCC National Road Operating & Construction Company

OMO Open Market OperationsOPEC Organization of Petroleum Exporting CountriesOUC Other Urban Centres

PAYE Pay As You Earn (income tax)PCB Peoples Cooperative Bank PCMB PanCaribbean Merchant Bank PD Primary DealersPDA Primary Dealers AssociationPOCA Proceeds of Crime ActPOS Point of Sale

RTGS Real Time Gross Settlement

8/6/2019 Boj Annual 2008

11/192

SCT Special Consumption TaxSIPS Systemically Important Payments SystemSRC Scienti c Research CouncilSSM Special Safeguard MechanismSWIPS System-wide Important Payment System

TCI Trade Credit Insurance

UK United KingdomUN United NationsUSA United States of America

VMBS Victoria Mutual Building SocietyVR Variable Rate

WASR Weighted Average Selling RateWATBY Weighted Average Treasury Yield

WTI West Texas Intermediate (crude oil)WTO World Trade Organization

8/6/2019 Boj Annual 2008

12/192

8/6/2019 Boj Annual 2008

13/192

- -

During 2008, the Jamaica Authorities were

confronted with severe challenges emanatingmainly from developments in the external

environment. The global economy was affected byrapid increases in international commodity pricesin the rst half of the year, particularly crude oilprices. In the second half of the year, the turmoilthat characterized the global nancial markets in2007 intensi ed, which led to a sharp tightening of international credit conditions. The combined effectof the commodity price shock and the tighteningof credit conditions led to recession in the major developed economies, particularly the United States(US). These developments, together with weather-related shocks during the year, had an adverseimpact on the Jamaican economy.

In ation in Jamaica remained elevated for the year.

Over the rst six months of the year, in ation inJamaica accelerated to 11.5 per cent, compared to4.7 per cent in the last half of 2007. This accelerationwas in uenced primarily by the sharp increasesin international commodity prices. Against thebackground of a reversal in commodity prices over the second half of the year, a more moderate in ationrate of 4.8 per cent was realised for that period.Other factors affecting in ation for the year includedsupply shocks from adverse weather conditionsand adjustments in administered prices. The impactof a sharp depreciation in the exchange rate ondomestic prices was also evident in the last quarter.Consequently, the annual point to point in ation rateat December 2008 remained elevated at 16.8 per cent, similar to 2007.

The Jamaican economy contracted by 0.9 per cent in

2008, associated in part with weather-related shocksas well as the negative impact of the increase incommodity prices on consumer spending. This declinewas in contrast to growth of 1.5 per cent in 2007. Themain industries that contracted wereAgriculture,Forestry & Fishing, Manufacture, Constructionand Transport, Storage & Communication.Partlyoffsetting the impact of the declines in these sectorswas growth inFinancing & Insurance Services,Real Estates, Renting & Business Activitiesand Hotels & Restaurants.

The agriculture sector was adversely affected by thelagged impact of adverse weather conditions. For themanufacturing sector, the contraction was related inpart to the slowdown in construction as the maincement producer curtailed production because of lowdemand. The decline inConstruction was evidentin private and public sector capital projects as wellas residential construction.Transport, Storage &Communication was negatively affected by theslowdown in the growth of the travel industry.

There was a deterioration of 4.3 percentage points inthe current account de cit of the balance of paymentsto 20.0 per cent of GDP in 2008. This deterioration

was in uenced principally by increases in the valuesof fuel and food imports, driven by the commodityprice shocks. The de cit was also negatively affectedby the cessation of banana exports because of thedestruction of the crop by Tropical Storm Gustav.

Partly offsetting the impact of these changes wereincreased earnings from alumina, ethanol and

Economic and Financial System Review

1. Overview

8/6/2019 Boj Annual 2008

14/192

Bank of Jamaica

- -

mineral fuel exports, all associated with the increasein international commodity prices. Gross privateremittance in ows also grew by 6.1 per cent in 2008,albeit slower than the 15.9 per cent expansion in

2007. The travel sub-account improved by US$104.3million, related to a 3.9 per cent increase in stopover visitors. The growth in stopover visitor arrivalsre ected the impact of the addition of new roomcapacity during the year. However, an estimated3.1 per cent decline in the average length of stay of stopover visitors as well as a 7.7 per cent contractionin cruise visitor arrivals partly offset the impact of the increase in stopover arrivals on the travel sub-

account

Within the nancial account, private capital in owswere buoyed during the rst half of the year byin ows from the sale of a local rum manufacturingcompany to a Trinidadian rm. Over the latter partof the year, ows were reversed by a signi cantincrease in calls to repay margin arrangementson GOJ global bonds and the termination of somerepurchase arrangements and lines of credit withoverseas brokers and distributors. The margincalls occurred in the context of sharp reductions inthe prices of GOJ global and Jamaican corporatebonds. Net of cial investment in ows also declinedin 2008, re ecting a reduction of US$185.8 million ingross of cial receipts. Gross of cial in ows includedproceeds from a Eurobond issue of US$350 million

in February 2008. Taken in conjunction with of cialcapital in ows, net private capital in ows were notsuf cient to nance the de cit on the current account. As a result, the net international reserves (NIR)declined by US$104.8 million during the year.

The foreign exchange market was subject toconsiderable pressures in 2008, particularly in

the last quarter of the year. These pressures werelargely related to an acceleration in the international

nancial crisis. Relative to the US dollar, theweighted average selling rate of the Jamaica Dollar

depreciated by 12.2 per cent for the year, comparedwith 4.9 per cent in 2007. Some of the pressuresin the market re ected the impact of the increasein commodity prices on imports and, consequently,foreign exchange demand. Over the latter half of the year, the pressures were largely related to thereduction in net private capital in ows. Most of themarket instability occurred in the last quarter of theyear when the exchange rate depreciated by 9.7 per cent, compared with average depreciation of 1.0 per cent over the rst three quarters.

The Bank responded to the challenges of acceleratingin ation and instability in domestic nancial marketsin 2008 in several ways. Early in the year, the Bankreintroduced the 365-day tenor to the spectrum of open market operations (OMO) instruments and

offered variable rate instruments to the market. Duringthe December 2008 quarter, the Bank established aspecial loan facility for security dealers and deposittaking institutions (DTIs) with US dollar liquidity needsto repay margin arrangements on GOJ global bonds. An intermediation facility in both foreign and localcurrency was also established to enhance the owof credit in the system. The Bank increased interestrates on the entire spectrum of OMO instruments ontwo occasions during the December quarter by anaverage of 548 basis points (bps). The cash reserverequirement ratio was also increased to 11.0 per centfrom 9.0 per cent. Throughout the year, the Banksold foreign currency amounting to approximatelyUS$917.8 million to the market, compared with US$1329.0 million in 2007.

Overview

8/6/2019 Boj Annual 2008

15/192

Annual Report 2008

- -

In response to the deterioration in the macroeconomicenvironment, market-determined yields roseduring the year, particularly in the last quarter. TheGovernment of Jamaicas (GOJ) weighted average

treasury bill yields (WATBY) on the 3-month and 6-month instruments increased to 22.01 per cent and24.45 per cent respectively, at the December 2008auction, relative to 12.89 per cent and 13.34 per centat the December 2007 auction.

Re ecting the overall slowdown in the Jamaicaneconomy in 2008 and the relatively tighter monetaryconditions, growth in the monetary base slowed to9.6 per cent for the year, relative to 12.6 per centin 2007. The growth in broad money supply (M3*)also decelerated sharply to 5.9 per cent from 15.9per cent in 2007. Most of the components of M3*contributed to the slower rate of growth. There wasalso a slower rate of growth in the use of alternativemeans of payment, relative to the previous year.

The slower rate of growth in the money supplywas in uenced by the reduction in the NIR andan increase in the Banks OMO instruments, theformer being largely due the Banks actions in theforeign exchange market over the year. The growthin BOJ OMOs was uneven throughout the year.Over the rst half, there was strong demand for theBanks instruments, in uenced by a widening of thedifferential between interest rates on US and JamaicaDollar instruments. However, over the second half of the year, there was a contraction in outstandingOMOs, mainly associated with the uncertainties inthe global nancial markets and seasonal demandfor currency.

For the period April to December 2008, the

Government incurred a de cit equivalent to 5.2 per cent of GDP, compared to the budgeted de cit of 4.3per cent of GDP. The deviation from budget re ecteda shortfall in revenue and grants, driven by the

unanticipated slowdown in the domestic economy.The impact of the shortfall in receipts on the de citwas partly offset by expenditure restraint, particularlythose for capital projects. The Government largely

nanced its operations from the domestic market.

The balance sheets of licensed DTIs were notimmune to the developments in the international

nancial markets during 2008. The impact of

these developments was primarily manifested in adecline of 6.6 per cent in the institutions investmentportfolios and a tempering of equity growth. Cashand bank balances also grew marginally, related tothe liquidation of placements at overseas institutions,some of which was to satisfy calls on their foreignliabilities. The overall growth in the assets of the DTIsconsequently decelerated to 8.1 per cent, compared

with 14.2 per cent for 2007.

In 2008, the prudential returns of the DTIs weresubjected to more frequent stress testing by theBank. Against the background of the intensifyingglobal nancial turmoil, the BOJs aggregate earlywarning systems showed some deterioration duringthe second half of the year. However, the stress testsrevealed that the capital adequacy ratios (CARs) for the banking system remained above the 10.0 per centminimum benchmark, in response to hypotheticalmarket, credit and liquidity shocks.

The Bank continued the process of reviewinglegislations and regulations during 2008. In relationto the consolidation of legislations governing the

Overview

8/6/2019 Boj Annual 2008

16/192

Bank of Jamaica

- -

operations of DTIs, focus was placed on currentissues such as,inter-alia,the proposed role of creditbureaux and provisions for electronic reporting. TheBOJ also revised two of its Standards during the year.

In this regard, the Bank issued the Standard of BestPractice for the Effective Corporate Governance inDTIs, which established the minimum expectationsfor an effective governance framework in theseentities. The second, Revised AML/CFT GuidanceNotes, incorporated the provisions of the Proceeds of Crime Act (POCA) and the POCA (Money LaunderingPrevention) Regulations.

Regulations to establish the supervisory regime thatwill be applicable to credit unions were completed in2008. This Bill will restrict the deposit-taking activitiesof cooperative societies to those which operate ascredit unions. Secondly, it will bring credit unionsunder the regulatory ambit of the Minister of Financeand the Bank of Jamaica.

The Bank advanced the modernization of thepayments and settlement infrastructure in 2008. Asigni cant milestone was achieved in terms of thedelivery of the software for the Real Time GrossSettlement (RTGS) System and the Central SecuritiesDepository (CSD) to the Bank in September 2008.The Bank was also able to train and certify allparticipants in the use of both systems by end-2008. Another important milestone was the drafting of therules and procedures that will guide the systems.

The outlook for the domestic economy in 2009 is for a moderation in in ation, despite the potential effectof the accelerated exchange rate depreciation whichobtained in the latter part of 2008. It is anticipatedthat the fall in in ation will occur in the context of a

decline in GDP, higher unemployment and tightenedcredit conditions. This projection is also based onthe expectation that the global recession will deependuring the year. The maintenance of relative stability

in the foreign exchange market will be the mainchallenge for the Bank in 2009.

Overview

8/6/2019 Boj Annual 2008

17/192

- -

. . Monetary Policy Management

. . . Introduction

During 2008, the Bank tightened monetary policy sharply in response to severechallenges emanating from adversedevelopments in the external environment. Thiswas in addition to measures taken to ease liquidityconstraints in the foreign exchange market. Thechallenges, some of which were unprecedented,were manifested in accelerated in ation during the

rst half of the year and instability in the nancialmarkets, particularly the foreign exchange market,during the second half of the year. The accelerationin in ation was primarily in uenced by the impactof sharp increases in global commodity prices,particularly those for energy and grains. A trendreversal of these prices started in the September quarter, in uenced by a reduction in global demand,due to an intensi cation of the global credit crisis.This was triggered by the collapse of two large

nancial institutions in the US which heighteneduncertainty in global nancial markets and led tosevere tightening in the credit market. As a result of these developments, signi cant imbalances emergedin the Jamaican foreign exchange market re ectingextraordinary foreign exchange needs of domestic

nancial institutions and rms. This also had an

adverse impact on in ation.

. . . Developments and ChallengesThe acceleration in in ation which began in theDecember 2007 quarter and continued into the rsthalf of 2008, presented a major challenge for theCentral Bank in its management of in ation. Theimpetus to domestic price adjustments was fuelled

mainly by sharp increases in international commodity

prices, due to rising demand for commodities inemerging economies, mainly China. The impact of this demand was exacerbated by supply shortagesas a number of countries implemented export banson certain commodities in response to concernsabout domestic food security. In addition, therewas continued speculation in commodities futuresmarkets, given the weakness in the US dollar. Crudeoil and rice prices, in particular, rose by 38.9 per centand 138.6 per cent, respectively, between December 2007 and end-July 2008. Consequently, annualin ation rose to 26.5 per cent by July 2008. Theacceleration in in ation contributed to heighteneddemand for foreign currency and consequentlysome instability in the foreign exchange market asinvestors sought a hedge. These problems wereexacerbated by high Jamaica Dollar liquidity. In this

context, the challenge for the Central Bank betweenJanuary and June 2008 was to temper medium-termin ation expectations by limiting the pass-through of rising commodity prices to underlying in ation.

The Bank responded to these developments byincreasing interest rates on three occasions duringthe rst half of 2008 (seeChart ). In addition, on16 January 2008, the Bank reintroduced the 365-day

tenor with a large premium.1 The Bank also offered aspecial variable rate instrument as well as its regular menu of open market instruments, and sold foreigncurrency during the rst half of the year to the marketto mitigate in ationary impulses (seeTable A). Theresultant widening of the interest rate differential

1 This tenor had been removed from the spectrum of open marketinstruments in April 2006

2. The Financial System

8/6/2019 Boj Annual 2008

18/192

Bank of Jamaica

- -

between Jamaica Dollar and foreign-currencydenominated assets in uenced unwinding of foreigncurrency holdings by some investors.

There was a subsequent decline in the rate of in ationduring the second half of the calendar year. Thedeceleration in in ation was strongly in uenced bythe decline in oil and commodity prices, particularlysince September. The Bank, however, remainedseverely challenged to meet its monetary policyobjectives due to the impact of heightened instabilityin the global nancial markets on Jamaicas foreignexchange market. There was a signi cant increasein calls on Jamaican nancial institutions to repayexternal margin arrangements on GOJ globalbonds and the termination by overseas brokers anddistributors of some repurchase arrangements andlines of credit. Further, there was also a reduction inUS dollar supply from major foreign currency earnersas well as from remittances. This was exacerbatedby the strong seasonal demand for foreign currency

in the latter part of the year. The domestic moneymarket was also affected, albeit to a lesser extent, assome institutions were reluctant to extend credit inthe inter-bank market. This was in the context of highlevels of Jamaica Dollar liquidity concentrated withina few institutions. In light of these developments, theexchange rate depreciated sharply in the December quarter (seeForeign Exchange Market).

The Bank responded to these later challenges witha number of measures. On 15 October, 2008, theBank established a US dollar Special Loan Facilityfor securities dealers and DTIs. An IntermediationFacility in foreign currency was established on 12November 2008 to enhance the ow of credit in thesystem. This facility was also extended to include

Jamaica Dollar transactions. The Bank also tightenedmonetary policy by increasing interest rates acrossthe entire spectrum of OMO instruments on twooccasions during the December quarter. In addition,

the Bank offered a 15-day special certi cate of deposit (CD) during 18-19 November 2008, to absorbexcess liquidity. Upon the maturity of this instrument,the Bank increased the required cash reserve ratioon prescribed Jamaica Dollar liabilities to 11.0 per cent from 9.0 per cent, effective 03 December 2008.The Bank also signalled that the reserve ratio wouldbe further increased by 3.0 percentage points in theensuing months if economic conditions necessitatedthis action (seeTable A).

. . . Base Money ManagementIn the context of these challenges, the monetarybase expanded by $6.2 billion or 9.6 per cent in2008, relative to 12.6 per cent in 2007, and the end-December programme target of 12.6 per cent. Theexpansion in the monetary base re ected an increase

of $1.8 billion or 3.8 per cent in net currency issue,and a net increase of $4.7 billion or 27.4 per cent inthe cash reserves. The deceleration in the growth of the monetary base, relative to 2007 was in uencedmainly by a contraction of 11.7 per cent for the rsttwo quarters of the calendar year, re ecting a 16.6per cent reduction in net currency issue.

Base money expanded by 24.0 per cent for thesecond half of 2008, mainly due to a 24.2 per centexpansion in the nal quarter of the year. Thisre ected a seasonal increase in currency issue aswell as a net increase of 21.7 per cent in the cashreserves, consequent on the increase in the statutoryrequirement. Net currency issue increased by 24.5per cent for the second half of 2008. This contributed

The Financial System

8/6/2019 Boj Annual 2008

19/192

Annual Report 2008

- -

to annual growth of 3.8 per cent as at end-2008,relative to growth of 11.6 per cent and 18.7 per centin 2007 and 2006, respectively. The deceleration inthe annual growth in currency was attributed to a

decline in real wages and increased unemployment.The expansion in the monetary base re ected anincrease of $14.0 billion in net domestic assets(NDA), mainly re ecting a net drawdown of $11.3billion on Government deposits at the Bank as well

Table A

INTEREST RATES ON BANK OF JAMAICA SPECIAL INSTRUMENTS

008Variable Rate Fixed Rate

Period of Issue

Certi cate of DepositMargin Certi cate of

Deposit

18 Jan. - 22 Jan. 12.80% 1.5001 Sept. - 5 Sept 14.58% 1.250

18 Nov. - 19 Nov. 20.50%

as an increase in BOJ holdings of GOJ securities(see Table B). The liquidity emanating fromthese impulses was partly reabsorbed through netplacements of $17.2 billion on OMO securities.

Absorption was also effected through the Banksnet sales of foreign currency to the market whichcontributed to a decline of US$104.8 million or $7.8billion in the NIR (seeTable B).

Chart


8/6/2019 Boj Annual 2008

20/192

Bank of Jamaica

- 8 -

Table B

BANK OF JAMAICA - SUMMARYFLOWS - J$MN

00 008 008

Total Jan - Mar Apr - Jun Jul - Sept Oct - Dec Total

Net International Reserves (US$) - 9.8 0 . . . - 8. - 0 .8NET INTL RESERVES (J$) - 0 8 . 9 .8 0 8. . - 0. - 9 Assets -34 660.2 14 390.3 26 681.0 -14 230.5 -35 163.5 -8 322.6Liabilities 4 074.6 403.5 16 222.4 15 845.6 503.1 32 974.6

NET DOMESTIC ASSETS 8 . - 08. - 8.0 - 8 . 8 88. 0 .

Net Claims on Public Sector .8 . .9 - 8 . 0 .9 8 9 .- Central Govt. Deposits 6 079.0 701.9 -18 390.3 7 111.3 21 911.8 11 334.6- Govt. Securities -13 260.2 61.2 1.6 5 968.1 7 719.0 13 749.9

- Other 7 506.9 2 126.0 18 936.7 -17 906.6 844.1 4 000.2

Net Credit to Banks -2 115.8 - 599.9 469.3 - 771.3 - 10.6 - 912.5Open Market Operations 40 015.7 -23 437.8 -12 656.6 4 615.9 14 291.0 -17 187.5Other - 358.4 62.6 919.9 - 704.8 3 833.1 4 110.8

MONETARY BASE 8 . - . - 99. - . 9 8.0 .

- Currency Issue 4 903.4 -6 975.4 - 861.5 - 442.9 10 084.8 1 805.0- Cash Reserve 2 438.1 390.2 416.9 334.0 3 582.5 4 723.6- Current Account - 59.9 170.4 - 754.8 36.6 260.7 - 287.0

Memo:NIR Stock (US$MN) e.o.p.) 1 877.7 2 083.4 2 228.8 2 251.1 1 772.9 1 772.9Growth in Monetary Base (%) 12.6 - 9.8 - 2.0 - .1 24.2 9.6In ation (%) 16.8 5.2 6.0 4.7 .0 16.9


8/6/2019 Boj Annual 2008

21/192

Annual Report 2008

- 9 -

Table C

BANK OF JAMAICA - ECONOMIC PROGRAMME TARGETS STOCKS - J$MNDecember 008

Target Outturn Deviation FromTarget

Net International Reserves (US$) 1 707.7 1 772.9 65.2

NET INTL RESERVES (J$) 130 056.9 128 520.4 -1 536.5

NET DOMESTIC ASSETS -56 552.1 -57 021.8 - 469.7

MONETARY BASE 73 504.8 71 498.6 -2 006.2


8/6/2019 Boj Annual 2008

22/192

Bank of Jamaica

- 0 -

. . Money Supply

During 2008, growth in broad money supply, M3*2 decelerated sharply to 5.9 per cent from 15.9 per centin 2007 (seeTable ). With the exception of Other Deposits, all the components of M3* contributed tothe slower rate of growth. The deceleration in M3* wasin uenced by the slowdown in economic activity.

The aggregate of currency in circulation and demanddeposits, M1*, declined by 4.8 per cent, comparedwith an expansion of 20.4 per cent in 2007. Growthin Currency with the Public decelerated to 3.2

per cent in 2008 from 13.7 per cent in 2007. Thistranslated into a real reduction of 11.6 per cent for 2008, relative to a real growth of 2.7 per cent for 2007. There was a faster rate of growth in the use of alternative means of payment such as point-of-sale (POS) transactions, predominantly creditcards, consistent with a reduction in real wages (see Table ).

Table

ALTERNATIVE MEANS OF PAYMENT TO CASHAnnual Growth 00 008

Value (%) 40.3 24.9Volume (%) 6.6 15.9Value (J$MN) 22 437.1 19 431.9

Demand deposits declined by 9.9 per cent, relative toan expansion of 25.0 per cent in 2007. This reductionre ected a 43.8 per cent decline in demand deposits

denominated in foreign currency as well as a slower rate of growth in the local currency component.The reduction in foreign currency demand depositsre ected a decline in the deposits of business rms

2 Money supply M3* is de ned as M2* plus Other Deposits. M2*represents banking system domestic and foreign currencyliabilities to the private sector in the form of notes and coins as wellas demand, time and saving deposits. Other Deposits are largelycomprised of commercial banks reserves.

and the tightness in the domestic and overseas creditmarkets.

Growth inQuasi Moneydecelerated to 9.4 per centin 2008 from 14.9 per cent in 2007 (seeTable ).This slower rate of growth was re ected in bothsavings and time deposits, in particular, the foreigncurrency component. The deceleration in theseforeign currency deposits was in uenced by awidening of the interest rate differential between USand Jamaica Dollar instruments as well as tightnessin the overseas credit market.

The slower rate of growth in M3* was in uenced bya reduction in the NIR and a build-up in BOJ openmarket instruments. The reduction in the NIR waslargely due to the Banks sale of foreign currency tothe market. There was strong demand for BOJ openmarket instruments during the rst half of the year,in uenced by the widening of the differential betweenUS and Jamaica Dollar instruments. However, withincreased uncertainty in the global and domesticmarkets as well as the need to pay for currency ordersand nance the cash reserve increase in December,there was a net unwinding of OMO instruments in thesecond half of the year.

The expansion in M3* was largely due to increasesin banking sector credit to the private and publicsectors. Growth in private sector credit slowed during

2008 and re ected a reduced rate of expansion inlocal currency loans. The slowdown was primarilyre ected inDistribution, Personal Loans andTransport (see Commercial Banks). The increasein credit to the public sector was concentrated in the

nal quarter of the year and re ected a net drawdownof Government deposits at the BOJ as well as anincrease in BOJ holdings of GOJ securities.


8/6/2019 Boj Annual 2008

23/192

Annual Report 2008

- -

Table

MONEY SUPPLY, M *

(DOMESTIC AND FOREIGN CURRENCY)(FLOWS)

00 008 00 008

(J$M) (J$M) % % Money Supply (M )* 999. 8 . . .

Money Supply (M )* 8 . - 0 . 0. - .8Currency with the public 4 894.0 1 320.9 13.7 3.2Demand Deposits 12 920.1 -6 425.1 25.0 -9.9

Quasi Money 8 .0 8 8 . .9 9.Savings Deposits 18 590.4 12 069.5 14.4 8.2Time Deposits 6 594.6 6 316.0 16.2 13.3

Other Deposits 0 . 8 0.8 . . Total Money Supply (M )* 9 0 . . .9 .9 Net Foreign Assets - .0 - 8 9 . - . - .

Bank of Jamaica -30 585.4 -6 544.7 -16.5 -4.8Commercial Banks 4 462.4 -32 371.4 -22.5 210.3

Credit to Private Sector 80.8 0 . 8. .

Local Currency 20 929.9 17 763.3 24.1 16.5Foreign Currency 16 250.9 27 438.8 37.9 46.4

Net Claims on Public Sector . 98.9 8. .8Net Claims on Financial Institutions - 90. - . . .BOJ Open Market Operations 0 0 . - 8 . - .9 .0Other Items (Net) - . 8 . - .9 8.

TOTAL 9 0 . . .9 .9


8/6/2019 Boj Annual 2008

24/192

Bank of Jamaica

- -

. . Commercial Banks

. . . OverviewThe consolidated balance sheet of the commercialbanks showed continued growth during 2008, albeit

at a slower rate relative to 2007. This slowdown wasin spite of the addition of PanCaribbean Bank, whichwas converted from a merchant bank in June 2008.The entry of PanCaribbean Bank increased thenumber of entities in the group to seven.

The deceleration in asset growth mainly re ected areduction in the institutions placements with overseasbanks, Investments as well as a slowdown in therate of growth inLoans which was offset by a notablebuild-up inBalances with the Bank of Jamaica.The latter re ected placements in the BOJs foreigncurrency deposit facility as well as an increase inthe cash reserve requirement of the deposit takinginstitutions (DTIs) to 11.0 per cent from 9.0 per centon 03 December. The adjustment led to an increasein the liquid asset ratio for the banking sector to 25.0

per cent from 23.0 per cent.

The slower rate of expansion in the banks asset baseoccurred in the context of a signi cant decelerationin the rate of growth in local currency deposits.Commercial banks were also able to garner increased

nancing from their overseas af liates in spite of thegeneral tightening in the global nancial markets.

During the year, there was a worsening in the banksasset quality, as re ected in an increase in past dueloans, relative to the stock of loans.

. . . Assets and LiabilitiesThe commercial banks asset base increased by11.6 per cent in 2008, relative to an expansion of

14.3 per cent in 2007 (seeTable ). Abstracting for the impact of the new bank, the sector would havegrown by 9.0 per cent in 2008. This slower rate of growth re ected reductions in the institutionsCash

and Bank Balances with commercial banks andInvestments as well as a marginal slowdown in therate of growth inLoans. Balances with overseasbanks were drawn down mainly in the nal quarter of the year in the context of the intensi cation of theglobal nancial crisis.Investments also declinedduring this quarter as banks unwound BOJ and GOJsecurities. The impact of this was partly offset byan increase in the holdings of foreign governmentsecurities by one institution during December (see Table ). As a consequence, commercial banksholdings of securities as a proportion of total assetsdeclined to 29.3 per cent at end-2008 from 34.3 per cent in 2007. The proceeds from the securities whichwere unwound as well as the cash and bank balancesreceived from overseas banks nanced the build-upin deposits with the Bank of Jamaica.

There continued to be strong growth in the banksstock of loans, which expanded by 26.3 per centin 2008 relative to 27.5 per cent in 2007.3 Themarginal deceleration was re ected in a slowdownin local currency denominated loans as there wasacceleration in the foreign currency component, partlydue to exchange rate depreciation (seeSection

. . ). Notwithstanding the slowdown in loans, theshare of total loans in total assets increased to 44.5per cent, the highest proportion for the four-year period ended December 2008 (seeChart ).

3 The commercial banks stock of loans refers to aggregate bookvalue of all extensions of credit, net of the provisions for losses.


8/6/2019 Boj Annual 2008

25/192

Annual Report 2008

- -

Table COMMERCIAL BANKS

SUMMARY OF ASSETS AND LIABILITIES (J$MN)

Stock Flows Flows Flows % % %

008 00 00 008 00 00 008

ASSETS ( ) . 8 . 0 8 . 88. . . .

Cash and Bank Balances 102 570.3 7 112.3 11 254.3 7 736.0 9.3 13.5 8.2

Placements with Overseas Banks 31 451.2 5 194.4 6 620.5 -9 950.8 17.6 19.0 -24.0

Due from BOJ 46 609.4 2 612.3 1 208.3 16 672.0 10.0 4.2 55.7

Other Accounts desig. as Liquid 10 544.9 1 556.0 -3 206.0 9 694.9 62.2 -79.0 1140.6Cash Reserve 36 064.6 2 514.7 4 414.3 6 977.2 11.3 17.9 24.0

Investments 156 439.7 31 471.6 4 644.8 -6 938.1 24.7 2.9 -4.2-Domestic Currency 96 790.4 15 160.8 -1 819.9 -7 492.9 16.7 -1.7 -7.2

BOJ Securities 35 098.3 11 603.2 -5 739.1 -1 261.6 38.0 -13.6 -3.5Jamaica Government Securities 57 691.2 2 506.4 5 788.9 -5 468.1 4.6 10.1 -8.7

-Foreign Currency 59 649.3 16 310.8 6 464.7 0 554.8 44.9 12.3 0.9Ja. Gov. Foreign Securities 45 793.8 7 921.6 5 804.4 -1789.1 23.4 13.9 -3.8Foreign Govt. Securities 3 399.9 153.1 1.1 3 245.7 0.0 0.7 2 104.8Other Foreign Securities 10 455.6 8 236.1 659.2 -901.8 334.5 6.2 -7.9

Securities Purchased for resale 3 334.4 2 448.2 -3 196.0 -650.5 51.7 -44.5 -16.3Loans (Net of provisioning) 242 479.4 21 338.9 41 473.5 50 427.0 16.5 27.5 26.3

Domestic 132 797.8 14 939.0 22 880.8 17 859.1 19.4 24.9 15.5Foreign 113 369.7 6 414.9 18 745.2 33 233.2 11.7 30.5 41.5 Accounts Receivable 13 054.7 -523.6 -102.2 6 647.7 -7.4 -1.6 103.8Fixed Assets 9 435.7 333.0 355.7 1 024.1 4.3 4.4 12.2Other Assets 17 339.3 695.8 6 435.9 -1 557.7 5.9 51.6 -8.2 LIABILITIES & CAPITAL . 8 . 0 8 . 88. . . .Deposits 333 960.0 36 660.6 38 233.2 12 801.3 14.9 13.5 4.0

Domestic 205 487.7 26 976.9 22 540.5 7 091.9 18.1 12.8 3.6Foreign 128 472.4 9 683.8 15 692.7 5 709.4 9.9 14.7 4.7

Due to Bank of Jamaica 197.1 -51.9 -149.2 163.7 -22.1 -81.7 489.8Due to Commercial banks 65 911.2 11 600.3 4 574.3 22 745.1 43.0 11.9 52.7

Domestic currency 1 151.4 -158.7 1 097.5 -781.2 -16.0 131.4 -40.4Foreign Currency 64 759.8 11 759.0 3 476.8 23 526.2 45.2 9.2 57.1

Head Off./Parent Co. 11 015.7 768.2 265.7 4 862.7 15.0 4.5 79.0Overseas banks 53 358.5 10 577.9 3 883.2 18 278.0 51.3 12.4 52.1

Due to Specialised Institutions 4 512.2 286.4 -202.2 503.0 7.3 -4.8 12.5Securities sold under Repurchase Agreements 24 990.4 -3 397.7 7 014.7 4 843.6 -20.6 53.4 24.0Other Liabilities 52 067.5 10 783.2 6 369.9 9 556.2 42.5 17.6 22.5Capital Account 63 015.1 6 995.2 5 025.4 6 075.7 15.6 9.7 10.7 (1) Assets exculde contingent accountsData account for provisioning Investments and Cash and Bank Balances adjusted to re ect reclassi cation of Certi cates of Deposit from other accounts designated as liquid to BOJ securities


8/6/2019 Boj Annual 2008

26/192

Bank of Jamaica

- -

Chart Loans and Securities as a Proportion of Commercial Banks Assets

Chart The Composition of Commercial Banks Assets

at December 00 and December 008

The slower growth in the banks assets during 2008occurred in the context of a signi cant decelerationin the rate of growth of deposits, particularly in the

rst half of the year (seeTable ). Growth in localcurrency deposits slowed to 3.6 per cent, well belowthe average of 11.0 per cent in the last ve calendar years. This development could be attributed to aslowdown in economic activity and the fallout inthe alternative investment schemes which affecteddeposits. The slower build-up in private sector deposits was also evident in the foreign currency

component and re ected a decline in demanddeposits as well as lower rates of growth in savingsand time deposits. In contrast, there was robustexpansion in other deposits which includes fundsheld by overseas residents.

The deceleration in foreign currency deposits,primarily demand deposits, largely occurred duringthe second half of 2008. In particular, there was areduction in foreign currency deposits of business

rms. In contrast, during the last quarter of the year,


8/6/2019 Boj Annual 2008

27/192

Annual Report 2008

- -

individuals accumulated holdings of foreign currencydeposits in the context of the general uncertainty.Consequently, the ratio of these deposits to totalprivate sector deposit liabilities was 30.1 per cent at

end-2008, relative to 30.6 per cent at end-2007 (seeChart ).

Consequent on the sharp deceleration in the growthof deposits, the commercial banks recorded anotable expansion in funds due to commercial banksoverseas during 2008. The growth rate of this source

of nancing increased to 52.1 per cent during 2008from 12.4 per cent in 2007.


TOTAL DEPOSITS (J$MN)

Stocks Flows Flows Flows % % %008 00 00 008 00 00 008

Deposits 336 613.1 38 156.8 37 872.3 13 861.0 15.5 13.3 4.3

Private Sector 271 199.2 22 500.3 38 105.0 11 903.4 11.3 17.2 4.6Demand /1 58 101.4 8 557.4 12 920.1 -6 482.2 19.9 25.0 -10.0Savings 159 359.6 12 905.0 18 590.4 12 069.6 11.1 14.4 8.2Time 53 738.3 1 037.9 6 594.6 6 316.0 2.6 16.2 13.3

Government 29 935.6 14 518.1 0 436.4 -6 671.8 67.0 1.2 -18.2

Other 35 478.3 1 138.4 -0 669.1 8 629.4 4.3 -2.4 32.1

/1 Deposits adjusted for Net Items in the Process of Collection


LOCAL AND FOREIGN CURRENCY DEPOSITS /(PRIVATE SECTOR) (J$M)

Stocks Flows Flows Flows % % %

008 00 00 008 00 00 008 Private Sector Deposits 271 199.2 22 500.3 38 105.0 11 903.4 11.3 17.2 4.6Local Currency 168 966.3 20 391.5 15 660.2 7 296.7 16.2 10.7 4.5

Foreign Currency 102 232.9 2 108.8 22 444.8 4 606.7 2.9 29.9 4.7 /1 Deposits adjusted for Net Items in the Process of Collection


8/6/2019 Boj Annual 2008

28/192

Bank of Jamaica

- -

Chart FOREIGN CURRENCY DEPOSITS TO TOTAL DEPOSITS

December 00 to 008

. . . Loans and AdvancesThe stock of commercial bank loans and advancesat end-2008 re ected a slower rate of increase of 26.2 per cent, relative to an expansion of 27.1 per cent in 2007(seeTable ). This was in spite of PanCaribbean Bank adding $5.9 billion to the loan

stock during the year, 78.0 per cent of which wasdenominated in foreign currency. The slowdown wasin uenced by a reduction in loans to the public sector as loans to other nancial institutions increased whilethe growth in loans to the private sector was at,relative to 2007. In real terms, however, the growthin the total stock of loans and advances deceleratedto 8.0 per cent in 2008, compared to 8.8 per centin 2007. Loans outstanding to the private sector continued to dominate the commercial banks loanportfolio, accounting for 87.0 per cent at end- 2008,compared to 83.4 per cent at end-2007.

Commercial banks loans to the private sector grew by31.7 per cent in 2008, relative to an increase of 31.1per cent in 2007. The growth in 2008 was primarily

re ected inTourism, Personal Loans, Professional &Other Services and Overseas Residents. Loans toTourism were largely denominated in foreign currencyand re ected nancing for working capital as well asthe purchase of a property by one institution (see

Table 8). Growth inPersonal Loansdecelerated to15.2 per cent, relative to an increase of 31.8 per centin 2007. This slower growth re ected a decelerationin the growth in instalment credit which includes

nancing for motor cars. Growth in loans for motor cars slowed to 19.8 per cent in 2008, relative to 63.0per cent in 2007. This lower growth may be attributedlargely to higher interest rates, adjustments toGovernments motor vehicle import policy as well asa decline in real income and the general slowdownin the economy. There was strong growth in loans toOverseas Residentswhich was predominantly usedto nance payment of dividends. This expansioncontributed to an increase in the proportion of foreigncurrency loans to total loans and advances to 46.1 per cent at end-2008 from 41.1 per cent at end-2007.


8/6/2019 Boj Annual 2008

29/192

Annual Report 2008

- -

Table

COMMERCIAL BANKS

TOTAL LOANS AND ADVANCES (J$MN)

Stocks Flows Flows Flows % % %008 00 00 008 00 00 008

Public Sector 0 . - . . -88 .8 - . . - .8Other Financial Institutions 0. . - .0 0. . - . .8Private Sector . . 8 .8 9. . . .

Agriculture and Fishing 4 588.1 466.8 -134.7 2 424.3 25.5 -5.9 112.0Mining and Quarrying 700.9 390.5 -130.1 187.5 154.3 -20.2 36.5

Manufacturing 9 302.6 1 187.3 393.8 3 043.5 25.4 6.7 48.6Construction & Land Development 12 902.1 2 533.2 931.8 3 924.7 46.0 11.6 43.7

Transport, Storage & Communication 11 468.2 -1 503.5 4 485.6 3 276.8 -28.9 121.0 40.0Tourism 40 769.0 1 364.6 5 280.5 11 206.2 6.0 21.7 37.9

Distribution 23 099.6 4 918.7 5 159.0 4 370.8 56.9 38.0 23.3Professional & Other Services 16 769.6 1 556.4 2 589.3 4 943.1 20.3 28.0 41.8

Personal Loans 84 877.3 14 761.9 17 780.4 11 175.3 35.9 31.8 15.2 Electricity, Gas & Water 3 353.5 -556.2 2 215.2 948.1 -74.5 1 165.3 39.4

Entertainment 414.8 17.1 - 5.5 129.0 6.2 -1.9 45.1Overseas Residents 5 986.2 19.5 10.2 5 940.1 118.8 28.4 12 883.5

TOTAL . 09 . .0 09 . .9 . .

* Private Sector loans exclude debentures

Chart

Distribution of Private Sector Loans and Advances

as at December 00 and December 008


8/6/2019 Boj Annual 2008

30/192

Bank of Jamaica

- 8 -

Table 8

COMMERCIAL BANKSFOREIGN CURRENCY LOANS AND ADVANCES (US$000)

Stocks Flows Flows Flows % % % 008 00 00 008 00 00 008 Public Sector - 8 9 8 - 9 - .8 . - .Other Financial Institutions 9 0 8 0 - 0 0 0 8.8 - . 9 .Private Sector* 9 80 98 9 89 8 0.9 9.0 .

Agriculture 23 378 1 775 1 325 16 093 42.4 22.2 220.9Mining & Quarrying 1 963 5 164 -1 690 -1 525 101.0 102.0 103.0Manufacturing 61 451 32 591 -23 821 28 186 133.1 -41.7 84.7Const., & Land Development 105 108 16 855 21 963 25 772 41.6 38.3 32.5Transport, Storage & Comm. 86 962 -2 224 38 510 15 495 -6.3 116.8 21.7Electricity, Gas & Water 26 838 -10 003 31 650 -4 827 -99.9 211 000.0 -15.2

Distribution 142 774 -2 065 51 181 39 390 -3.8 98.0 38.1Tourism 479 596 2 598 45 990 85 238 0.8 13.2 21.6Entertainment 1 178 -261 -453 -19 -13.7 -27.5 -1.6Professional & Other Services 72 158 5 616 9 576 20 510 15.4 22.8 39.7Personal Loans 94 575 15 298 18 570 14 192 32.9 30.0 17.7Loans to Overseas Residents 73 825 54 93 73 678 1.0 2.0 3.0

TOTAL 8 9 0 9 8 8 .8 . .

*Private sector loans excluding debentures

Chart COMMERCIAL BANKS ADVANCE TO DEPOSITS RATIODecember 00 to December 008


8/6/2019 Boj Annual 2008

31/192

Annual Report 2008

- 9 -

The ratio of total non-performing loans to total loansincreased to 2.6 per cent at end-2008, from 2.0 per cent at end-2007 and 2.2 per cent at end-20064.The ratio of commercial banks loans to deposits

increased to 62.7 per cent at end-2008, from 52.3per cent at end-2007 (seeChart ).

. . . Liquid AssetsTotal liquid assets of the commercial banks increasedby 25.8 per cent in 2008. This largely re ected higher

4 Non-performing loans are classi ed as loans past due for threemonths and over. The international maximum benchmark for non-performing loans is 10.0 per cent.

holdings of short-term instruments due to increaseduncertainty as well as the increase in the requiredliquid assets ratio. At end-2008, the ratio of averageliquid assets to prescribed liabilities increased to 37.4

per cent from 30.0 per cent at end-December 2007(see Table 9). With the higher holdings of securities,the banks excess reserves as a proportion of prescribed liabilities increased to 12.4 per cent atend-2008 from 7.0 per cent at end-2007.

Table 9

COMMERCIAL BANKSLIQUID ASSETS

00 00 008Dec Dec Mar Jun Sep Dec

Statutory Liquidity (%) Cash Reserve Ratio 9.0 9.0 9.0 9.0 9.0 11.0Liquid Assets Ratio 23.0 23.0 23.0 23.0 23.0 25.0

Average Liquid Assets Holdings (%) 42.3 30.0 33.4 36.7 39.7 37.4 Liquid Assets (J$BN)

Notes and Coins 6.5 6.5 7.0 3.9 5.3 7.0Current Account 1.3 2.9 1.4 0.5 0.5 1.4Cash Reserve 14.8 17.3 17.7 18.1 18.4 22.0Treasury Bills 1.2 2.1 1.9 1.6 1.5 0.8Local Registered Stocks* -2.3 -1.9 -1.2 -2.0 -0.8 -0.7Other Government Securities 1.3 2.2 1.7 3.4 3.6 4.4BOJ Open Market Instruments 42.1 30.9 35.6 38.5 46.3 34.3Other Placements with BOJ 4.1 0.9 4.3 4.5 6.4 3.2Repo Agreements with counter-parties 1.4 1.5 0.2 0.7 0.9 0.2

Total 70.4 62.4 68.6 69.2 82.1 72.6 Prescribed Liabilities (J$BN) 164.7 191.7 196.1 201.0 204.5 178.2Excess Reserves (J$BN) 31.7 13.5 20.5 27.5 34.2 22.2*Net of securities pledged as collateral


8/6/2019 Boj Annual 2008

32/192

Bank of Jamaica

- 0 -

. . . Interest Rates and SpreadsDuring 2008, the overall interest rate spread of thecommercial banks declined by 56 basis points (seeTable 0). The decline in the spread largely re ected

a reduction in the weighted average loan rate duringthe period April to October. Concurrently, there wereincreases in the weighted average deposit rate.

With the exception of loans toOther Public Sector and Central Government , the reduction in the overallinterest rate spread was re ected in all categories of

loans (seeTable ). The most signi cant reductionwas evidenced in the spread on loans to commercialentities and Instalment Credit which together accounted for approximately 62.6 per cent of theloan portfolio.

Table 0

DOMESTIC MARKET INTEREST RATES(End of Period)

00 00 008 Dec Dec Mar Jun Sep DecCOMMERCIAL BANKS

INTEREST RATE SPREAD . . 8 . 8 . . . Overall Average Weighted Loan Rate . 9 . . .9 . . 8 Foreign Currency AverageWeighted Loan Rate 9. 9. 8. 9. 9. 8.9

Overall Average Weighted Deposit Rate .0 .9 . .8 .0 .Demand 2.86 2.79 2.64 2.63 2.59 2.45Savings 4.64 4.47 4.33 4.35 4.48 4.48Time 6.60 6.99 6.82 6.94 7.03 7.37Certi cates of Deposit

1-month 6.36 6.99 6.44 6.54 6.16 7.283-month 6.98 6.96 6.88 7.03 7.27 7.3912-month 6.71 6.95 6.86 7.38 7.08 7.25

Foreign Currency AverageWeighted Deposit Rate . . .88 . .9 .0

Demand 2.28 2.35 1.77 1.63 1.64 1.72Savings 2.21 2.31 2.10 2.06 2.03 2.00Time 5.01 5.09 4.93 4.95 4.83 5.11

GOJ -MONTH TREASURY BILL RATE . . . . . BOJ 80-DAY REPURCHASEAGREEMENT RATE .00 .00 . 0 . 0 . 0 . 0 PRIVATE MONEY MARKET RATE .8 . 0 .90 . .8 .0


8/6/2019 Boj Annual 2008

33/192

Annual Report 2008

- -

Table

COMMERCIAL BANKS INTEREST RATE SPREADS

(BY SECTOR)

00 00 008 Dec Dec Mar Jun Sep Dec OVERALL AVERAGE WEIGHTED LOAN RATE . 9 . . .9 .

OVERALL AVERAGE WEIGHTED DEPOSIT RATE .0 .9 . .8 .0 .

OVERALL SPREAD . . 8 . 8 . . .

Instalment Credit 16.63 16.02 15.96 15.63 15.47 15.23

Mortgage 8.07 2.48 2.75 2.62 2.49 2.42

Personal 22.62 20.50 20.51 20.38 19.38 19.78

Commercial 8.34 8.95 9.04 8.76 7.66 7.85

Central Government 8.81 10.31 10.48 9.85 10.07 17.17

Other Public Sector 7.10 4.59 6.17 6.22 8.23 8.18

. . Other Financial Intermediaries

. . . Financial Institutions Act Licensees

(FIAs)The consolidated balance sheet of the FIA licenseesrecorded a notable decline in 2008, relative to end-2007. The contraction was mainly in uenced by theconversion of Pan Caribbean Merchant Bank (PCMB)to a commercial bank in June 2008 and the continuedrealignment of the balance sheet of another entitytowards core business6. These respective factors

mainly resulted in declines inLoans and Advancesand Investments. The consolidated balance sheetof the FIAs was also in uenced by the impact of theglobal nancial crisis. This was re ected in reductionsin the institutionsCash and Bank Balances with

5 Includes merchant banks and trust companies.6 Pan Caribbean Merchant Bank converted to PanCaribbean Bank

and accounted for 22.0 per cent or $8 815.4 million of the sub-sectors asset base at end-May.

Commercial Banks, and Investments, mainlyholdings of non-GOJ foreign currency securities. TheFIAs also unwound securities sold under repurchaseagreements while increasing their liabilities with theBOJ.

The cash reserve requirement of the FIAs was

increased by 2 percentage points to 11.0 per cent on3 December 2008. The adjustment led to an increasein the statutory liquid asset ratio for the sub-sector to25.0 per cent from 23.0 per cent.


8/6/2019 Boj Annual 2008

34/192

Bank of Jamaica

- -

Table ASSETS AND LIABILITIES OF FIAs

(J$MN)

Stock Flows Flows %

Change

%

Change

008* 00 008 00 008 Assets ( ) Cash and Bank Balances with Commercial Banks 302.1 580.8 -2 358.8 27.9 -88.6Balances with Other Financial Institutions 7.2 1.7 -0.7 27.3 -8.5Balances with Bank of Jamaica 978.5 155.0 64.3 20.4 7.0Investments 15 495.2 -2 356.4 -8 746.8 -8.9 -36.1Securities Purchased with a View to Resale 3 190.1 -122.9 253.0 -4.0 8.6Loans & Advances (net of provision) 10 710.2 3 044.9 -3 422.4 27.5 -24.2 Accounts Receivable 1 171.2 -379.5 -7.4 -24.4 -0.6Other Assets 800.7 21.0 305.3 4.4 61.6TOTAL . 9 . - 9 . . - 9.9

Liabilities and Capital Deposits 14 519.4 3 136.3 -2 633.9 22.4 -15.4Balances due to Commercial Banks 542.3 -281.6 -30.5 -33.0 -5.3Balances due to Specialised Institutions 143.8 35.0 -196.4 11.5 -57.7Borrowings from Other Financial Institutions 673.7 -405.5 -583.7 -24.4 -46.4Securities sold under Repurchase Agreements 7 279.8 -1 699.7 -10 832.5 -8.6 -59.8Other Liabilities 4 841.0 -294.3 4 075.2 -27.8 532.1Capital & Reserves 4 655.2 454.4 -3 711.6 5.7 -44.4TOTAL . 9 . - 9 . . - 9.9

Memorandum Items

Foreign Currency Assets 19 099.7 18.0 -10 752.4 0.1 -36.0Foreign Currency Liabilities 12 634.8 2 129.8 -3 686.4 15.0 -22.6

(1) Assets exclude contingent accounts *Provisional Data

. . . . Assets & Liabilities

The assets of the FIA licensees amounted to $32655.3 million at end-2008, representing a contractionof 29.9 per cent for the calendar year. Adjusting for the impact of PCMB, the sector would have declinedby 13.9 per cent, relative to a decline of 0.9 per centin 2007. This overall contraction largely re ecteddeclines inInvestments, Cash and Bank Balanceswith Commercial Banksand Loans & Advances (net of provision).Investments declined by 36.1 per cent, relative to a reduction of 8.9 per cent in 2007and accounted for approximately 63.0 per cent of

the overall contraction (seeTable ). Taking intoaccount the impact of PCMB,Investments declinedby 29.8 per cent, relative to 10.5 per cent in 2007.The decline in investments of the remaining entitiesoccurred mainly in the rst four months of the year and primarily re ected reductions in the institutionsholdings of corporate securities denominated inforeign currency as one institution realigned itsportfolio towards core business. The impact of thedecline in these securities was partly offset by anincrease in the holdings of GOJ foreign currency


8/6/2019 Boj Annual 2008

35/192

Annual Report 2008

- -

denominated securities. Cash and bank balancesplaced with overseas commercial banks declinedin response to the general uncertainty that obtainedin global nancial markets and the intensi cation of

the credit crisis in the nal quarter of the year. Thisled institutions to unwind cash balances as well assecurities to nance calls on the liabilities during thatquarter.

Loans and Advances contracted by 24.2 per centin 2008, mainly due to the conversion of PCMBto a commercial bank, which affected the foreigncurrency loans portfolio7. Abstracting for this, growth

in loans and advances decelerated to 9.7 per centin 2008 from growth of 33.7 per cent in 2007. Thisdeceleration re ected the slowdown in economicactivity in 2008.

Consequent on the overall decline in foreign currencyloans and cash balances with commercial banksabroad, the sub-sectors holdings of foreign currencyassets declined by 36.0 per cent for 2008. With theexclusion of PCMB, the foreign currency assetsdeclined by 21.2 per cent, relative to 2.7 per centin 2007. The decline in 2008 led to a reduction inthe ratio of foreign currency assets to total assets of the remaining entities to 51.9 per cent at end-2008compared to 65.2 per cent at end-2007.

The impact of the declines in some of the major

categories of assets was partly offset by increasesin Balances with the Central Bank, SecuritiesPurchased with a View to ResaleandOther Assets,mainly in the nal quarter of the year. The expansionin balances with the BOJ mainly resulted from theincrease in the cash reserve requirement in the nal

7 At the point of exit, Pan Caribbean accounted for 76.8 per cent of total foreign currency loans and 30.0 per cent of total loans.

quarter of the year, after the exit of PanCaribbean.Without the impact of Pan Caribbean, the securitiespurchased with a view to resale would have increasedby 34.9 per cent, relative to the overall increase of

8.6 per cent.

The deposits of the FIAs contracted by 15.4 per centduring 2008, in contrast to an increase of 22.4 per cent in 2007. This decline was mainly in uenced bythe removal of the foreign currency deposits of PanCaribbean, which had accounted for 85.3 per centof its balance sheet at the time of exit and 26.7 per cent of the sectors total deposits. Abstracting for thisimpact, growth in deposits decelerated to 18.9 per cent from 20.8 per cent in 2008 in keeping with theslowdown in the economy.

During the year, there were continued declines inSecurities sold under Repurchase Agreements and Borrowings from Other Financial Institutions as one large institution continued to realign its balance

sheet towards core activities. In addition, thesedeclines were in uenced by the tightening of credit inthe global nancial market and the attendant call onthe liabilities in the latter half of the year. Consequenton these developments, deposits became the largestsource of nancing, accounting for approximately52.0 per cent of total liabilities compared to 45.0 per cent of total liabilities in 2007. With the exclusion of Pan Caribbean, deposits accounted for 37.2 per centof liabilities in 2007.

The entities consolidated capital base declined by44.4 per cent in 2008, relative to growth of 5.7 per cent during 2007. After adjusting for the impact of PCMB, the capital base declined by 8.4 per cent,relative to growth of 3.2 per cent in 2007. The decline


8/6/2019 Boj Annual 2008

36/192

Bank of Jamaica

- -

for the remaining entities re ected reduction inretained earnings and reserves.

. . . . Sectoral Distribution of Loans

Loans and advances to the private sector declinedby 23.4 per cent in 2008, relative to growth of 21.8per cent in 2007 (seeTable ). Taking account of

the impact of PCMB, there were net repayments inall sectors with the exceptions of Mining & Quarrying,Professional & Other Servicesand Electricity.FIAlicensees extended loans mainly toConstruction &

Land Development, Electricity and Personal (seeChart ).Table

SECTORAL DISTRIBUTION OF LOANS AND ADVANCESOF

INSTITUTIONS LICENCED UNDER THE FINANCIAL INSTITUTIONS ACT(J$M)

00 008* 00 008 00 008Stock Stock Flows Flows (%) (%)

Public Sector . .9 . - 08. .0 - 0.9Financial Institutions . . 0.8 - .9 0 0. - .Private Sector 0. 0 0 . . - 0 .0 .8 - .Agriculture & Fishing 1 029.6 28.4 -7.4 -1 001.2 -0.7 -97.2Mining & Quarrying 10.2 47.3 -9.7 37 -48.6 361.8Manufacturing 519.1 363.5 95.6 -155.6 22.6 -30.0Construction & Land Development 2 977.5 2 514.9 1 313.6 -462.6 78.9 -15.5Transport, Storage & Communication 842.2 443.4 233 -398.8 38.2 -47.4Tourism 810.7 283.5 -185.1 -527.1 -18.6 -65.0Distribution 1 763.0 1 276.6 -111.6 -486.3 -6.0 -27.6Professional & Other Services 1 534.4 1 601.9 209.6 67.5 15.8 4.4Personal Loans 2 767.9 2 451.3 783.6 -316.5 39.5 -11.4Electricity 14.6 2 451.3 4.4 2 436.7 43.7 16 694.4Entertainment 89.3 24.5 -17 -64.8 -16.0 -72.5Overseas Residents 772.2 820.8 45.5 48.6 6.3 6.3

TOTAL 0 . 0 8 .9 0 0. - 89. . - .9

* Provisional Totals include provisions for loan losses


8/6/2019 Boj Annual 2008

37/192

Annual Report 2008

- -

Chart: Chart: 8

At end-2008, the quality of the loan portfolio, asevidenced by the ratio of past due loans (over threemonths) to total loans, deteriorated, as re ected in an

increase in the ratio to 5.4 per cent at end-2008, from3.7 per cent in 2007. The ratio was 4.9 per cent in2007 when the PanCaribbean effect was taken out.

. . Building Societies

. . . OverviewThe assets of the building societies grew at a slower rate during 2008, relative to 2007. The decelerationwas in uenced mainly by the slowdown in thedomestic economy. There was also a reallocationof assets in the context of the global nancial crisis.The impact of these developments was re ectedin declines in the institutionsCash and BankBalances with Commercial Banksand holdings of non-GOJ foreign currency denominated securities

as well as a slowdown in the rate of growth of mortgages. Concurrently, there was a notable build-up inBalances with the Bank of Jamaica, largely

re ecting placements in the BOJs foreign currencyDeposit Facility.

The cash reserve ratio requirement was increased by2 percentage points to 11.0 per cent on 03 December 2008. This applied to institutions which did not meetthe 40.0 per cent requirement for residential mortgageloans to savings fund ratio. The cash reserverequirement of the building societies remained at 1.0per cent for those which met the qualifying ratio. Theincrease in the cash reserve ratio requirement ledto an increase in the statutory liquid asset ratio for the sub-sector to 25.0 per cent from 23.0 per centand remained at 5 per cent for those meeting thequalifying ratio.


8/6/2019 Boj Annual 2008

38/192

Bank of Jamaica

- -

Table

ASSETS AND LIABILITIES OF BUILDING SOCIETIES

(J$M)

STOCK STOCK FLOW FLOW Per Cent Per Cent00 008 00 008 00 008

ASSETS Cash and Balances with Commercial Banks 20 432.3 13 142.8 6 641.7 -7 289.4 48.2 -35.7Balances with Other Financial Institutions 28.7 35.3 -1 488.7 6.6 -98.1 22.9Balances with Bank of Jamaica 1 876.8 7 389.9 267.2 5 513.1 16.6 293.8Investments (net of provision) 26 879.9 22 655.6 2 640.4 -4 224.2 10.9 -15.7Securities Purchased with View to Resale 7 925.5 11 651.5 -6 331.0 3 726.0 -44.4 47.0Loans and Advances (net of provision) 58 258.3 75 415.4 15 170.6 17 157.1 35.2 29.5- of which Mortgages 57 680.1 74 665.1 15 082.5 16 985.0 35.4 29.4

Accounts Receivables 3 858.5 3 792.9 -107.5 -65.6 -2.7 -1.7

Fixed Assets 2 082.0 2 364.7 -60.3 282.6 -2.8 13.6Other Assets 1 410.6 2 083.6 498.1 673.0 54.6 47.7TOTAL . 8 .8 0. 9. . .

LIABILITIES and CAPITAL Savings Fund 84 377.3 93 285.3 10 792.3 8 908.0 14.7 10.6Due to Commercial Banks 3 824.7 5 365.1 960.6 1 540.4 33.5 40.3Due to Specialized Institutions 9 251.4 14 093.4 3 197.0 4 842.0 52.8 52.3Due to Other Financial Institutions 890.9 1102.6 -672.2 211.7 -43.0 23.8Other Liabilities 3 206.8 4 072.8 286.6 866.0 9.8 27.0Capital and Reserves 21 201.5 20 612.6 2 666.2 -588.9 14.4 -2.8TOTAL . 8 .8 0. 9. . .

INDICATIVE RATIOS (Per Cent) Liquid Assets : Total Assets 18.2 14.8Liquid Assets : Savings Fund 26.5 22.0 Advance : Savings Fund 69.0 80.8Mortgage Loans : Savings Fund 68.4 80.0

. . . Assets and LiabilitiesThe total assets of the building societies stood at$138 531.8 million at end-2008, re ecting growth of 12.9 per cent for the year, compared to an increaseof 16.3 per cent in 2007. The deceleration mainlyre ected reductions in the institutionsCash andBank Balances with Commercial Banks and Investments. Balances with overseas banks weredrawn down mainly in the nal quarter of the year,following the intensi cation of the global nancial

crisis. A slowdown in the rate of growth in mortgagesof all institutions also contributed to the decelerationin the growth rate of the asset base (seeSection

. . .).

Most of the decline inInvestments occurred earlyin the year and mainly re ected a reduction inone entitys holdings of local corporate securities.There were also reductions in the sectors holdings


8/6/2019 Boj Annual 2008

39/192

Annual Report 2008

- -

of foreign government securities and corporatesecurities denominated in foreign currency in the nalquarter of the year. The proceeds from the unwindingof these securities as well as the drawdown of cash

and bank balances from overseas banks nancedthe acquisition of additional GOJ foreign currencydenominated securities and the build-up in balanceswith the Bank of Jamaica. The increase in theholdings of GOJ global bonds was consistent withhigher returns on these instruments.

The assets of the building societies continued tobe nanced largely from the savings fund, althoughthere was a slowdown in the growth rate of thissource of nancing to 10.6 per cent from 14.7 per cent in the previous year. This deceleration wasre ected in savings denominated in foreign currencywhile there was marginal growth in the domesticcurrency component. Building societies, however,recorded an increase of 40.3 per cent in funds dueto commercial banks, both local and overseas, in the

September and December quarters, respectively. This growth rate represented an acceleration, relativeto expansion of 33.5 per cent in 2007. The increasedplacement with domestic banks was concentratedin one institution. Growth in liabilities to specializedinstitutions, particularly the National Housing Trust,remained strong, re ecting the mortgage nancingarrangement between the two institutions.

Capital and Reserves declined by 2.8 per centduring 2008, compared to a growth rate of 14.4 per cent in the previous year. This decline arose largelyfrom the erosion in reserve holdings, given thereduction in the market value of the securities heldby the institutions.

During 2008, there was a decline in the liquid assetsto total assets ratio to 14.8 per cent, from 18.2 per cent at end-2007, mainly re ecting the declinein Cash and Bank Balances with Commercial

Banks. In addition, the liquid assets to savings fundratio declined to 22.0 per cent, from 26.5 per cent atend-2007, re ecting the faster deceleration in liquidassets, relative to the savings fund. In contrast, thegrowth in loans outpaced that of the savings fundwhich resulted in an increase in the advance tosavings fund ratio to 80.8 per cent at end-2008, from69.0 per cent at end-2007.

There was deterioration in the quality of the loanportfolio. At end-2008, the ratio of total past dueloans (over three months) to total loans, was 3.6 per cent relative to 3.0 per cent at end-2007.

. . . Building Societies New Mortgage LoansDuring the review year, there was a sharp decelerationin growth in the value of new mortgage loans issued

by building societies. Concurrently, the number of new mortgages issued continued to decline, albeitat a slower rate, relative to 2007 (seeTable ).The slower growth in the value of new mortgageswas re ected largely in the slowdown in growth of residential mortgage loans to 27.9 per cent, from 60.5per cent in 2007. In addition, there were declines of 31.5 per cent and 98.1 per cent in new commercialand agricultural mortgage loans, respectively.

The number of new mortgage accounts declined by1.2 per cent during 2008, following a decline of 4.7per cent in 2007. The reduction in 2008 was mainlyre ected in a 96.4 per cent decline in the number of agricultural and other new accounts as well asa slowdown in the growth rate in the number of


8/6/2019 Boj Annual 2008

40/192

Bank of Jamaica

- 8 -

new residential mortgages. The average loan sizeincreased to $4.8 million in 2008 from $3.9 million in2007. At end-2008, the weighted average mortgage

loan rate charged by building societies was 12.56 per cent, a reduction of 4.0 basis points for the year. Thiswas a slower decline relative to the decline of 128.0basis points for 2007.

Table

BUILDING SOCIETIES NEW MORTGAGE LOANS

00 to 008

Stock Stock Flow Flow % Change % Change 00 008 00 008 00 008

Value of New Accounts (J$M) Residential 14 582.7 18 655.5 5498.1 4 072.8 60.5 27.9Commercial 196.8 134.8 87.1 -61.9 79.5 -31.5

Agricultural & Other 0 727.9 0 013.9 -456.1 -714.0 -38.5 -98.1TOTAL 0 . 8 80 . 9. 9 .9 9. .

Number of New Accounts Residential 3 719 3 885 132 166 3.7 4.5Commercial 16 18 -12 2 -42.9 12.5

Agricultural & Other 223 8 -316 -215 -58.6 -96.4TOTAL 9 8 9 - 9 - - . - .

Weighted AverageMortgage Loan Rate (%) 12.60 12.56 -1.28 -0.04

. . Development Banks

. . . Development Bank of JamaicaDuring 2008, the Development Bank of Jamaicacontinued to provide medium and long-term

nancing through Approved Financial Institutions(AFIs) and Peoples Cooperative Banks (PCB) atconcessionary interest rates8. Both loan approvalsand disbursements increased during the year,relative to 2007. Loan approvals for Small andMedium-sized Enterprises (SME)recorded thelargest increase while loan disbursements toOther Services grew the strongest during the year. Incontrast, the sectors that experienced the sharpestdeclines in loan approvals and disbursements wereManufacturingand Agro-Industry.

8 AFIs include commercial banks and merchant banks.

The assets of the DBJ fell by 2.3 per cent in 2008due to declines of 34.8 per cent and 7.4 per cent inInvestments and Loans to Financial Institutions,respectively (seeTable ). The contraction inInvestments was in uenced by a call on liabilitiesdue to the National Road Operating & ConstructingCompany (NROCC). Securities were unwoundto nance the repayment of these liabilities. Thereduction in Loans to Financial Institutions re ected declines inOther Loansand Loans to AFIs. These contractions were partially offset by increasesof 18.6 per cent inReceivables & Prepayments, aswell as respective increases of 2.8 per cent, 32.4 per cent and 39.0 per cent inGOJ Infrastructural LoanProgrammes, Securities-Resale Agreements andCash and Bank Balances,.


8/6/2019 Boj Annual 2008

41/192

Annual Report 2008

- 9 -

With respect to the DBJs liabilities, there was adecline inOther Liabilities, which primarily re ectedthe repayment of liabilities due to NROCC. Thisdecline more than offset the increases in all other

categories of liabilities andShareholders Equity.

Loan Approval and DisbursementsLocal currency loan approvals amounted to $2 016.9million in 2008, re ecting an increase of 22.0 per cent, relative to 2007 (seeTable ). The increasewas mainly related to the SME line of credit whichcommenced during the year and accounted for the majority of local currency loan approvals (see

Table 8). Local currency loan approvals for Mining& Quarrying, Agro-Industry and Tourism alsoincreased during the year. However,Agriculture (thesecond largest bene ciary of loans)Other Services

andManufacturingall recorded declines in the valueof loans approved in 2008, relative to 2007.

Local currency loan disbursements amounted to $2

066.1 million, an increase of 5.9 per cent, relative to2007. This was due to an increase in disbursementsto Other Services and, to a much lesser extentMining & Quarrying, SME and Tourism. Therewas a decline in disbursements to all other sectors.Other Services and Agriculture accounted for 51.5 per cent and 20.4 per cent, respectively, of disbursements made during the year respectively.

Foreign currency loan approvals and disbursementsincreased during the year to US$8.9 million andUS$8.0 million, respectively. These were both relatedto loans for Tourism and Agriculture.

Table

DEVELOPMENT BANK OF JAMAICA

ASSETS AND LIABILITIES (J$MN)

00 008 Change % ChangeASSETS Cash and Bank Balances 566.0 787.0 221.0 39.0Receivables and Prepayments 3 816.0 4 524.0 708.0 18.6Investments 7 098.0 4 628.0 -2 470.0 (34.8)Securities - Resale Agreements 1 095.0 1 450.0 355.0 32.4Loans to Financial Institutions 10 059.0 9 313.0 -746.0 (7.4)

-Loans to Co-operative Banks 585.0 884.0 299.0 51.1-Loans to AFIs 3 797.0 3 740.0 -57.0 (1.5)-Other Loans 5 677.0 4 689.0 -988.0 (17.4)

GOJ Infrastructural Loan Programmes 23 739.0 24 397.0 658.0 2.8Other Assets 0.0 0.0 0.0 0.0

Fixed Assets 426.0 627.0 201.0 47.2TOTAL 99.0 .0 - 0 .0 (2.3)

LIABILITIES AND SHAREHOLDERS EQUITYShareholders Equity 5 996.0 6 922.0 926.0 15.4Current Liabilities 1 144.0 1 751.0 607.0 53.1Long-term Liabilities 32 197.0 33 420.0 1 223.0 3.8Short-term Liabilities 395.0 407.0 12.0 3.0Other Liabilities 7 067.0 3 226.0 -3 841.0 (54.4)TOTAL 99.0 .0 - 0 .0 (2.3)


8/6/2019 Boj Annual 2008

42/192

Bank of Jamaica

- 0 -

Table

LOAN APPROVALS AND DISBURSEMENTS TO AFIs , PCB AND INVESTMENTS BY SECTOR

APPROVALS

Local Currency (J$MN) Foreign Currency (US$MN)00 008 % change 00 008 % change

Sector Agriculture 720.3 445.3 -38.2 0.0 3.0 Agro-Industry 128.0 231.3 80.7 0.0 0.0 0Manufacturing 233.8 104.0 -55.5 0.0 0.0 0Mining & Quarrying 51.2 199.4 289.5 0.0 0.0 0Other Services 395.1 195.6 -50.5 0.0 0.0 0.0Tourism 124.3 191.3 53.9 2.1 5.9 177.0SME 0.0 650.0 - 0.0 0.0 0.0Total . 0 .9 .0 . 8.9 .8

DISBURSEMENTS Local Currency (J$MN) Foreign Currency (US$MN)

00 008 % change 00 008 % changeSector Agriculture 725.3 421.4 -41.9 0.0 4.0 Agro-Industry 560.0 91.1 -83.7 0.0 0.0 0Manufacturing 425.2 140.0 -67.1 0.0 0.0 0Mining & Quarrying 51.2 137.6 168.8 0.0 0.0 0Other Services 79.6 1,064.8 1 237.7 0.0 0.0 0Tourism 109.7 136.2 24.2 1.9 4.0 109.8SME 0.0 75.0 - 0.0 0.0 0.0

Total 9 .0 0 . .9 .9 8.0 .

Table 8

LOAN APPROVALS AND DISBURSEMENTS TO AFIs, NPCB AND INVESTMENT BY SECTOR(PROPORTIONS)

APPROVALS DISBURSEMENTSLocal Foreign Local Foreign Local Foreign Local Foreign

Currency Currency Currency Currency Currency Currency Currency Currency00 008 00 008

Sector

Agriculture 43.6 0.0 22.1 33.7 37.2 0.0 20.4 0.0 Agro-Industry 7.7 0.0 11.5 0.0 28.7 0.0 4.4 0.0Manufacturing 14.1 0.0 5.2 0.0 21.8 0.0 6.8 0.0Mining & Quarrying 3.1 0.0 9.9 0.0 2.6 0.0 6.7 0.0Other Services 23.9 0.0 9.7 0.0 4.1 0.0 51.5 0.0Tourism 7.5 100.0 9.5 66.3 5.6 0.0 6.6 0.0SME 0.0 0.0 32.2 0.0 0.0 0.0 3.6 0.0

Total 00.0 00.0 00.0 00.0 00.0 0.0 00.0 0.0


8/6/2019 Boj Annual 2008

43/192

Annual Report 2008

- -

. . . National Export-Import Bank of Jamaica

. . . . IntroductionDuring 2008, the National Export-Import Bank of Jamaica Limited (EXIM Bank) continued to provide

nancial support to rms in the form of short andmedium-term nancing as well as trade creditinsurance.

The EXIM Banks loan portfolio continued to recordgrowth, in line with the objectives set in its Three-Year Strategic Plan (2007-2010) Vision 2010. The EXIMBank had set as its target a 25.0 per cent increaseto $6.0 billion in loan utilization for the nancial year

ending March 2009.9 In support of this objective,the EXIM Bank increased funding to the tourism,agro-business, manufacturing as well as mining &quarrying sectors, which were identi ed as having thepotential for increased foreign exchange earnings.Special emphasis was also placed on funding thedevelopment and expansion of small and medium-sized enterprises, particularly those providing vitallinkages to the export sectors.

In August 2008, the EXIM Bank introducedTrade Credit Insurance (TCI). This facility was anenhancement on the previous Export Credit Insurance(ECI) product. Trade Credit Insurance covers exportand domestic sales, the sale of goods trans-shippedfrom Jamaicas duty free zones to countries withinthe Caribbean as well as third-country sales against

commercial and political risks of non payment. Acorresponding Insurance Policy Discounting Facility(IPDF) that allows for the discounting of up to 80.0per cent of insured receivables was made available9 The utilization of credit for the nine months ended December

2008 amounted to $5.4 billion. The performance for the ninemonths ended December 2008 was partly attributed to the Bankscompetitively priced loan products, supported by sustainedmarketing and advertising programmes.

to policyholders requiring working capital support.

During 2008, the EXIM Bank broadened its reachto include emerging sectors such as the creativeindustries and intensi ed its collaborative efforts withagencies such as the Jamaica Business DevelopmentCentre (JBDC), the Scienti c Research Council(SRC) as well as the Jamaica Guild of Artists (JGA).The collaboration with these agencies was aimedat establishing viable risk-sharing agreements toencourage the development of entrepreneurship. Inthis regard, the JBDC and EXIM Bank signed a 60:40per cent risk sharing agreement to facilitate nancing

to craft manufacturers contracted to JBDCs ThingsJamaican shops. A Memorandum of Understandingbetween the EXIM Bank and the SRC was alsoin the process of being nalized. It is anticipatedthat this agreement would allow researchers anddevelopers of new products to access nancingfor the establishment of new businesses. Financialsupport was committed to the JGA to facilitateaccess to grant funding from the Caribbean Export

Development Agency for training and development.

. . . . Review of Lending OperationsDuring 2008, the EXIM Bank disbursed domestic andforeign currency loans of approximately J$3.3 billionand US$37.3 million, respectively, achieving totaldisbursement of approximately J$6.5 billion. Thisrepresented an increase in total disbursements of 35.0 per cent for the year.

Local currency disbursements were 29.0 per centabove that recorded in 2007 and re ected thecontinued strong demand for pre- and post-shipment

nancing which provided working capital support todomestic manufacturers and exporters (seeTable

9).


8/6/2019 Boj Annual 2008

44/192

Bank of Jamaica

- -

Table 9

LOCAL CURRENCY DISBURSEMENTS

Facilities 00 008 Change

ChangeJ$MN J$MN J$MN %

Bankers Export Credit Facility 168.0 487.0 319.0 189.9

Export Credit Facility 596.4 640.0 43.6 7.3Insurance Policy Discounting Facility 24.6 41.1 16.5 67.2Pre-Shipment/Copake Facilities 989.0 1,231.5 242.5 24.5 Apparel Sector Financing 49.0 27.0 -22.0 -44.9Modernization Fund for Exporters 462.7 554.7 92.0 19.9Small Business Facility 224.5 201.9 -22.6 -10.1

General Trade Line 47.8 59.7 11.9 24.9JEA/Ebbed 11.7 28.8 17.1 146.4NIF 18.1 70.3 -11.1 -61.1Information Communication Technology (ICT) 0.2 0.3 0.1 50.0Total 9 .0 . 0.8 9.0

The Agro-Processing and Food & Beveragesectors continued to be the main recipients of theEXIM Banks funding in 2008, collectively accounting

for 79.4 per cent of total local currency approvals(see Table 0).

Table 0

APPROVED LOANS BY INDUSTRY

Industry 00 008

J$ % J$ % Agro Processing 864.8 33.5 1612.0 49.2

Food & Beverage 887.8 34.1 991.3 30.2

Textile & Apparel 72.9 2.8 28.3 0.9

Manufacturing 497.0 19.2 246.1 7.5

Distribution/Services 211.5 8.2 346.9 10.6Mining 58.0 2.2 54.5 1.7Total 9 .0 00.0 9.0 00.0


8/6/2019 Boj Annual 2008

45/192

Annual Report 2008

- -

Table

FOREIGN CURRENCY DISBURSEMENTS

FacilityUS$MN US$MN Change Change

00 008 US$ %

Lines of Credit 17.2 28.5 11.3 65.7

Bankers Export Credit Facility 0.6 2.0 1.4 240.0

Cuban Line of Credit 3.2 6.6 3.4 105.3

Export Growth Initiative Fund 1.6 0.3 -1.4 -84.4Total . . . .

Foreign currency loan disbursements increasedby 65.2 per cent during 2008, primarily re ecting

an increase in lines of credit support to nancethe construction and hardware industries (seeTable ).

. . Financial Stability Assessment of Deposit-Taking Institutions (DTIs)

. . . OverviewIn 2008, the prudential returns of DTIs were subjected

to frequent stress testing by the Bank.10,11

For eachquarter, the tests revealed that the capital adequacyratios (CARs) for the banking system remained abovethe 10.0 per cent minimum benchmark, in responseto hypothetical market, credit and liquidity shocks.However, the CAR for the banking system wouldhave declined marginally as at end-2008, relativeto end-2007. The BOJs aggregate early warningsystem indicated that the macro-prudential index aswell as the micro-prudential indices for commercialbanks, FIA licensees and building societies sectorsalso showed deterioration during 2008, particularly10 The objective of stress testing is to determine the impact of extreme

but plausible shocks to various risks factors (credit quality, foreignexchange, and domestic interest rate and liquidity risks) on thecapital adequacy of DTIs.

11 Prudential returns used in the assessment include, but are notlimited to, Jamaica Dollar and foreign currency balance sheets,sectoral credit pro les, maturity and repricing gaps of the DTIs.

during the second half of the year. This deteriorationoccurred against the background of challengesarising from the impact of the intensi cation of theglobal nancial turmoil.

. . . Credit Risk Stress Tests ResultsThe DTIs remained resilient to hypothetical shocksto non-performing loans (NPLs) during 2008.12 For instance, there was a less than 0.5 percentage pointdecline in capital adequacy for all three sectors as

a result of a hypothetical 30.0 per cent increase inNPLs (seeTable ). During 2008, there was anincrease in NPLs when compared to the previousyear, largely in uenced by the slowdown in domesticeconomic activity during the year. The ratio of NPLsto total loans increased to 2.6 per cent at end-2008,relative to 2.0 per cent at end-2007 and 2.2 per centat end 2006.13

12 NPLs represent principal and interest payments outstanding 3months and over.

13 The international benchmark for non-performing loans to totalloans is 10.0 per cent.


8/6/2019 Boj Annual 2008

46/192

Bank of Jamaica

- -

Table

DTIs QUARTERLY CREDIT RISK STRESS TEST RESULTS

Mar-08 Jun-08 Sep-08 Dec-080.0 per cent shock to NPLs

Original CAR 17.03 16.70 16.02 15.15Post-shock CAR 16.72 16.37 15.68 14.76Change in CAR (percentage points) -0.31 -0.33 -0.34 -0.39

Notes:1/ Capital adequacy is impacted through provisions for new NPLs, where capital and risk-weighted assets (plus foreign exchange exposu

are reduced by the amount of the new provisions

2/ The assumed provisioning rate for new NPLs is 20.0 per cent for the 3 - 6 months category and 100.0 per cent for loans outstanding ov6 months.

This deterioration in credit quality for 2008 wasre ected mainly inPersonal, Transportation,

Distribution and Professional Services whichaccounted for 62.4 per cent of the total loans at end-2008. Despite these relatively high concentrationlevels, the DTIs were resilient to a hypothetical 40.0per cent deterioration in performing loans to thesesectors (seeTable ). As a result of this hypotheticalshock the systems CAR declined by 3.6 percentagepoints to 11.5 per at end-2008.

. . . Foreign Exchange Risk Stress TestResults

The vulnerability of DTIs to foreign exchange raterisk increased during 2008, principally as a result of a

sharp depreciation in the value of the Jamaica Dollar against major international currencies in the second

half of the year. The increased exposure of DTIs toforeign exchange rate risk was evident, as the ratioof foreign currency net open position to capital for the system increased to 28.0 per cent at end-2008,relative to 22.2 per cent for the corresponding periodin 2007 (seeTable ). Nonetheless, a hypotheticaldepreciation of 30.0 per cent in the exchange ratevis--vis major international currencies did not have a

signi cant impact on the DTIs CAR (seeTable ).14

Speci cally, DTIs CAR fell by 1.4 percentage pointsto 13.8 per cent for the December quarter, indicativeof the systems resilience.

14 The net open position is computed as the sum of the net spot posi-tions, net forward positions and guarantees. Thereafter, the foreignexchange exposure is determined as the maximum of the long andshort net open positions across all currencies. Hypothetical shocksto the relevant exchange rate are applied to each of the net openpositions. The impact of the resulting foreign exchange gain or losson pro tability and capital adequacy are then evaluated.


8/6/2019 Boj Annual 2008

47/192

Annual Report 2008

- -

Table

boj annual 2008

Documents