An Air Jamaica plane prepares for landing at the Sangster International Airport in Montego Bay November 2008. - Ian Allen/Staff Photographer

Standard & Poor's has cut credit ratings on Air Jamaica and National Commercial Bank of Jamaica, bringing them in line, as its policy dictates, with Jamaica's sovereign 'CCC+' rating on local and foreign currency debt, down from 'B-'.

But the ratings agency appears more optimistic about NCB's prospects, suggesting that for Jamaica, the commercial bank appears too big to be allowed to fail.

So while S&P considers NCB vulnerable and its holdings too heavily concentrated in government debt and securities and in loans to public-sector bodies, it has put the bank's 'survivability' ranking at B+, though that is still a downgrade from 'BB+'.

The bank up to June had $159 billion of securities in its investment portfolio, up from $151 billion a year before.

Air Jamaica, which has two government-backed bonds on the market - a US$200-million issue due in 2015 and a US$125-million issue due in 2027 - relies on state support and is seen as vulnerable to Jamaica's debt rescheduling plans.

Negative outlook

The opposition, however, said it demonstrated the weakness of the economic team.

Air Jamaica is fully owned by the State - having reacquired the private sector held portion from Gordon Butch Stewart's Air Jamaica Acquisition Group in December 2004 - but the Govern-ment is once again in the process of selling the carrier.

Like its assessment of Jamaica, S&P credit analyst Carolina Duran said the downgrade and negative outlook reflects the agency's view "that Jamaica's vulnerable fiscal profile, combined with difficult financing conditions, may compel the Government to undertake a debt exchange that we could regard as distressed."

Both Air Jamaica's and NCB's outlook are negative.

"NCB has a very large exposure to Jamaican sovereign-debt securities and loans to public entities," said S&P.

"Also, we believe that the deteriorating economic situation in Jamaica and the more challenging conditions for the Jamaican banking system will continue to pressure the financial performance of the bank."

S&P downgraded Jamaica saying its fiscal position had weakened, and that talks under way to rearrange the country's local debt would, if creditors agreed, amount to a technical default.

Jamaica's brokerages and the Ministry of Finance have dismissed the rating as premature, coming ahead as it were of disclosure on the agreement that Jamaica is finalising with the IMF to strengthen its balance of payments position.

Survivability assessment

NCB's Atrium headquarters in New Kingston. - Photo by Carlington Wilmot

Indeed, Jamaica's precarious debt position, the agency said, could constrain support for NCB were the bank, whose assets top $311 billion, to need support "in times of stress," S&P said.

But, the agency added, it is maintaining its survivability assessment at three notches higher than the counterparty credit rating, on its "continuing expectation that the Government could give certain assistance to the bank if needed because of NCB's significant market share in the country, adequate financial performance, and large branch network and deposit base."

The bank's deposits were $132.8 billion at June, while its network at 48 branches and 166 ABMs is Jamaica's largest.

Its loan portfolio grew 25 per cent in a year to reach $89 billion at June 2009.

NCB's share of the loan market was 34 per cent at March 2009, while the bank commanded 36 per cent of deposits held by Jamaica's seven commercial banks, putting it at second place in the sector behind Canadian-owned Scotiabank Jamaica.

lavern.clarke@gleanerjm.com