The majority of securities dealers in Jamaica have seen their net interest income take a serious hit due to the current interest rate regime.

Barita Investments was no exception.

For the first quarter of the financial year 2024, Barita Investments generated a net operating revenue of J$1.3 billion, a decline of $1.1 billion or 45 per cent relative to the same period last year.

Net profit fell by 55 per cent to $479 million.

Net interest income dropped by 74 per cent to $147 million while non-interest income fell year-over-year by 47 per cent as a result of a fall in the gain on investment activities. Here, ‘Gain on Investments’ declined by $1.1 billion or 78 per cent to $323 million. Barita explained that this represents the prior year impact of a significant valuation gain linked to its exposure to the Barita Real Estate Portfolio Fund.

For the period under review, total assets came in at $128.7 billion largely unchanged with total shareholder equity at $36.7 billion. ‘Return on Average Equity’ was 5.4 per cent and the efficiency ratio stood at 52.6 per cent.

At a briefing held at its corporate offices in Kingston earlier today, Barita announced that its investment banking line performed commendably.

Operating expenses was a cause for cheer with a decline of 36 per cent to $696 million compared with the $1.1 billion posted for Q1 FY 2023. Staff costs were up 23 per cent but that was due to one-off restructuring costs .This is expected to lead to a decrease in staff costs going forward. Administrative expenses were down 40 per cent driven by reductions in marketing, legal and professional fees.

Barita’s exposures to loans increased by $1.5 billion or 13 per cent to $12.6 Billion. Barita’s loans are largely comprised of secured credit facilities including margin loans.

Shareholders’ equity is growing based on retained earnings movement and improvement in fair value reserves.

Earnings per share (EPS) is down 55 per cent which is in lockstep with the net profit performance. Barita’s capital adequacy continues to be above the industry average. Barita is at 27 per cent while the industry average tends to be 19.6 per cent with the FSC requirement being 10 per cent.

The operating environment characterised by elevated inflation and interest rates has impacted Barita’s business but it is employing a diversification strategy while it rides out the storm plaguing all ships in the harbour.

Ramon Small-Ferguson, deputy CEO of Barita Investments and managing director of Barita Units Trusts Management Company, said: “On the inflation front locally, we are seeing an acceleration. We saw inflation at 7.4 per cent in January which is outside the Bank of Jamaica’s target range of 4 to 6 per cent. But we are well below the peak we saw in April 2022 of 11.8 per cent. The notable low in the recent past has been 5.8 per cent in April of last calendar year. So based on the guidance from the Monetary Policy Committee (MPC), it has continued to hold the Policy Rate at 7.00, describing its actions as being centred around heightened surveillance with respect to the inflation outlook. What is telegraphed, is a continued elevated level above the target range before we start to see things become more restrained in future quarters and months. There is still some synchronicity with respect to monetary policy across major economies spelling high rates, lower liquidity and we are certainly seeing that in Jamaica.

“The underlying state of the monetary policy environment has particular effects on our business. The pace at which and the degree to which rates have gone up both locally and internationally has presented headwinds for interest income. That’s a fact and consequently what we are anticipating as there is greater stability in the interest rate environment both locally and internationally, is the positive effects of this high interest rate phenomenon – a repricing of the asset side of our balance sheet. As assets naturally come to maturity and as we onboard new funding onto our balance sheet, that is expected to improve interest income in the first instance then net interest income.

“We are also anticipating an improvement in our funding costs as the current state of interest rates becomes entrenched. If we see continued stability we are anticipating that should be positive for both sides of the net interest income picture. We continue to benefit from the buffers and the opportunities presented by our prudent capital management. That is a critical pillar upon which we have built the business. We pride ourselves on the risk management benefits of our robust capital base. What that does is position the business to execute on market-neutral investment strategies. Now what does that mean? We are able to execute, using a weather analogy, rain or shine – whether it be a high-interest rate environment or low-interest rate environment. Our robust capital base gives us optionality around that and we will continue to exploit the strengths provided by our high capital and low leverage. We are also steely focused on improving our operating efficiency which has always been central to our strategy. There is a cost to growth and we have been making large investments over the course of the post acquisition period.”

Dane Brodber, interim CEO of Barita Investments, giving an overview of Barita’s strategy explained,” Our strategy is built on four tenets. 1. Reorganisation for efficiency. 2. Customer centricity. 3.Technology. 4. Governance and risk management. From a corporate reorganisation perspective, we are organising into a financial group with Barita and its sister company Cornerstone Merchant Trust & Bank being subsidiaries of a single financial holding company. Internally, in line with the corporate restructuring, we are amending our structure as well. We are looking to change the way we work and interact with clients to seamlessly deliver the full range of our products and services across the group. We are looking to more effectively leverage our capabilities within the subsidiaries to provide services across the group. We had to make some tough decisions late last year re the organisation process. We will have to take a similar approach to the efficiency of our group.

“We continue to remain committed to our investments in technology. We have upgraded our core systems while enhancing the capabilities of Barita Online. We are building a seamless digital experience across the group that is able to optimise our efficiency. We continue to pay close attention to risk adjusted returns and build capacity for our key business lines. Alternative investments continues to be a key tenet of our strategy. Our real estate strategy is now entering its development phase. In the mean time we have curated various private equity and private capital exposures with more to come.”