Dated: 12 November 2003
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Earl Jarret, General Manager
Jamaica National Building Society
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Debt collection is one of the biggest problems facing small businesses. But what is the best way to manage it? If a complete stranger wandered up to you in the street asking for an unsecured loan of $10,000, the response would be negative. Who is this person? Do I know him? What assurances would I have that he would pay me back and when?
Very sensible, and full marks for caution and prudence. However, that scenario happens every day in business. There is always pressure to obtain business, but sales have to be profitable to achieve business success.
Since debt collection is one of the biggest problems facing small businesses, are big businesses immune to this? The answer is no, and one such company that comes to mind is Jamaica National Building Society (JNBS), the leading building society in Jamaica and the Caribbean with assets of $34.75 billion (Group) and $26.97 billion (Society). It also ranks fourth in terms of total assets and capital and reserves ($5.35 billion (Group) among local banks, building societies and licensees under the Financial Institutions Act.
Despite moving closer to achieving its vision, as a result of making positive results for efforts to strengthen customer service delivery, enhance leadership and staff development, and improve business process, General Manager, Earl W. Jarrett, in presenting the Group’s achievements during the financial year ending March 31, 2003 at a recent media appreciation luncheon at The Alhambra Inn off Mountain View Avenue in Kingston, "they have been severely challenged," in the area of debt collection.
This challenge, he said, stemmed from an "increasing arrears tendency, a tendency in the main that has a reason, and one which stemmed from primarily the challenges that some of our borrowers are having in the economy."
In defence of the borrowers, Mr. Jarrett noted how a number of them have lost their jobs, including those who went into self-employment, whether it was the taxi business or trading, which have had particularly difficult times. As a result, they have been challenged to keep their arrears, which is over $1Billlion, under control. As it relates to arrears, we now have over a billion dollars in reserve.
The society’s core business activities comprise the granting and maintenance of home loans; the mobilization and maintenance of savings and savings accounts; trading in foreign currencies; and the facilitation of international money transfers. The business of the Society also benefits from the activities carried out by its subsidiaries. These activities include general insurance services, insurance premium financing, small business loan financing, investment management, credit facilitation, information technology solution, real estate brokerage, property management and real estate development.
Aggressive debt management has yielded little noticeable change in the level of bad debts and delinquency. This is a serious problem. Efforts to regularize payments and to collect on bad debts are unrewarding as customers continue to bemoan the constraining impact of economic conditions on their job search, earning power and disposable income.
"We have been working through a debt collection entity which is a little bit more aggressive than the Society has been to collect on those debts, and so far we have been seeing an improvement, but not to the extent yet that we want.
Of the total 1,485 new loans that were approved, Mr. Jarrett said 1,375 were disbursed during the review period. "At the end of the year the Society’s loan book stood at $9 billion or 13.031 loans representing a 2.6% increase over the loan book at March 31, 2002 in the number of loans and a 22.5% increase in the value of the mortgage loan portfolio. These figures include a total of 92 loans for a value of J$54.36 million purchased during the year."
The central bank’s provisioning guidelines for loan losses, he explains, "require 100% provisioning for the principal balance for loans, which are in arrears for 18 months and over, and 50% provisioning for loans in arrears between 12 and 18 months." Based on this guideline and management’s evaluation of the loan portfolio, he says, a total provision of $717 million is now shown in the society’s 2003 accounts while $746 million is in the group’s accounts. These compare with provisioning of $839 million (Society) and $845 million (Group) in the 2002 accounts.
In addition, he reports that as at March 31, 2003 balances related to loans, which are considered doubtful, or on which payment is outstanding for 90 days or more amount to $892 million. These are loans and advances on which no interest is being earned. This compared to $1,079.3 million at March 31, 2002 and $1,024.5 million at March 31, 2001.
Another ongoing challenge that continues to plague JN is savings, despite the fact that their savings fund for the year rose to some $26.9 billion, a representation of a 16.1% growth or $3.4 billion, which of course include the retained savings. "I don’t want us to get fooled in to thinking that the savings are spontaneously growing, some of this is the interest that is being retained in the accounts over the years," he said.
Pointing out that savings was a challenge for Jamaicans, Mr. Jarrett noted that it was important that people understand the difference between a saver and an investor. He notes that because of the deafening noise in the advertising arena, a lot of people believed that the only thing to do was to invest in some sort of money market instrument.
Money market instruments, Mr. Jarrett noted aren’t for everyone, but for "a particular client who understands what he is doing, a client who is sufficiently sophisticated, a client who has a longer horizon in terms of the time his money can be put away, and it is a client who is prepared to take the necessary risks that are associated with such investments. Besides, he knows those investments do and can suffer from capital loss. Therefore, we need to get Jamaicans to understand that investment in some institutions where they may be able to start at $500 is not savings, it is an investment that you are making and you are taking the risk associated with that.”
What’s the difference between savings and investments? Savers think about how much of their money they can put aside in their bank account, and don't think about how to get the most out of those hard-earned savings. Investors are smart savers who know the value of maximising the earning potential of their savings by investing. (See article on page 35 What’s the difference between saving and investment)
However, as it relates to mortgages, last year was a particularly good year for the group, and Mr. Jarrett attributed this to a number of reasons. "One, I thought the mortgage product was quite interesting as of the 1,485 new loans that were approved, 1,375 were disbursed," he said.
Despite the mixed blessing that JN has received over the last financial year, Mr. Jarrett believes that the company is still on course to achieving the vision of being the premier provider of financial services to Jamaicans locally and overseas. Therefore, in an effort to advance this vision, they have over the last three years pursued strategies revolving mainly around customer service delivery, staff development and business process improvement.
The results of many market surveys and direct customer feedback show that they have achieved positive results.
During the year, projects were developed to support the Group’s long-term strategic plan as captured in our Values and Vision Statements. In relation to their communities, their corporate and branch projects have continued to enable them to give back to many of their stakeholders especially students. For students at all levels we they share through financial assistance, mentorship, health and sports programmes. Their customer’s focus is supported by projects seeking to improve processes, communication, product and service development and delivery, as well as by their newest unit The Customer Service & Quality Assurance Department.
In its continuing bid to meet the needs of customers, the Society has enhanced a number of its products and services.
In December 2002, they created and successfully launched the JNFX brand so as to allow them to compete more effectively in the foreign currency marketplace.
JN Bill Pay, which is their utility payment facility, was branded and launched in June 2003. With the additions of NWC, they now are a payment center for the payment of all utilities.
JN Tax Saver Account, which is their existing long-term savings account product, was both re-branded and enhanced with benefits to make it more attractive and competitive in the market place. This product emphasises long-term tax-free savings and offers the option to save in both Jamaican and US dollars.
Their College Marketing Programme, established to meet the needs of tertiary students throughout the island, has strategically given the society a stronghold in this demographic group and from which they are making significant head way.
Similarly, the society’s School Savings Programme continues to perform well and to date, over 17,000 accounts have so far been opened in more than 230 schools islandwide. According to Mr. Jarrett, "this programme has been very effective in introducing JNBS to children as we encourage the discipline of thrift."
Speaking of thrift, Mr. Jarrett noted that Jamaica has one of the lowest savings rate within the region. "The fact of life is that with controlled inflation there is no need to spend today because it is going to get expensive tomorrow. Jamaica got used to an experience coming from the days of very high inflation that if you are buying a widget in January it suits you to buy it on hire purchase because if it cost a $1 in January when inflation was 50%, it would cost a $1.50 at the end of the year."
The reality for him was that in the immediate past when inflation was in single digit, at 8% and 9%, it was a viable proposition for people to start saving for an item in the future and to avoid the expensive hire purchase, and therefore it was "important that we change this attitude of Jamaicans, and the best place to start is in schools where we can get students understanding that there is a discipline to deferring spending and there is an opportunity to earn from your funds by putting it aside in a savings account."
However, in terms of the group’s overall performance, Mr. Jarrett said JN was on a "growth curve" and that they have been "seeing positive results all around."
As reported in its latest annual report, the JN group has performed well during financial year 2002/2003, which is being underpinned by strong net interest income of $2 billion, gains on disposal of investments of $390 million, unrealized foreign exchange gains of $308 million and contributions from the subsidiaries of $397.4 million before tax. At the end of March 2003, the Group’s net surplus before tax stood at $1.82 billion and after tax at $1.38 billion.
So far, the society’s total assets rose to $26.97 billion at March 31, 2003 representing a 16.13% or $3.74 billion growth. A $2.31 billion or 11.84% increase in the Society’s savings fund, which includes retained interest income on savings balances, underpinned this performance. At the end of March 2003, the Society’s savings fund balance stood at $21.84 billion.
Their capital and reserves have also strengthened further during the period ending the year at $4.16 billion. The ratio of capital and reserves to savings was reported at 19.04% and capital and reserves to assets at 15.42% at the end of the financial year 2003.
On the staff development side, JN is known within the marketplace for its people-person-orientation approach, and have set out in a big way to strengthen this area. With Everton Morgan at the helm of the company’s human resource department, a number of things have been happening.
One, they have built a unique training programme geared towards getting people up to speed on the specific processes. "We have also invested heavily in leadership development," said Mr. Wright, "because that is a real challenge that we face in Jamaica and also in the company. We are striving to a point where people lead the process and not themselves be led and pushed, be more efficient, caring and pleasant, and who will strengthen the benefits which accrue to our customers."
Also, in seeking to raise the level of customer satisfaction, JN had commissioned a market research study among their members and customers. The results of this survey has indicated that overall the society has a customer satisfaction score of 90%. "We are happy with this reading but our goal is to improve on this level in all areas to ensure that JN becomes the institution by which others are benchmarked."
As they continue to be challenged to remain efficient, competitive and relevant in this fast changing local and global industry, Mr. Jarrett notes that their task will become more difficult when taken against the background of the relatively unstable economic environment in which they operate.
He is however confident that with "constant and careful economic assessment" of the group’s business model, they could remain a "strong and reliable entity."
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