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FINANCIAL REVIEW

FINSAC losses continued in its third year of operation, as was expected. Total losses amounted to $30.8 billion, with cumulative losses for the three years totalling $98.5 billion.In the year under review, FINSAC earned $3.4 billion (1999 - $3.6 billion) in revenue.

The cost of operation amounted to $18.6 billion, producing a net operating loss of $15.2 billion. Other charges of $15.6 billion brought FINSAC’s total losses for fiscal 1999/2000 to $30.8 billion.

Revenues earned were generated substantially from interest on loans to financial institutions, which amounted to $3.3 billion (1999 - $3.2 billion). Other sources – investment and rental income, interest on deposits, and IDB funding earned $173 million (1999 - $334 million).

General and administrative expenses increased from $356 million in 1999 to $432 million – a 21% increase. Provision for bad debt of $169 million (1999 - $33 million) represented 39% of the year’s administrative expenses. Foreign and local consultancy expenses decreased from $210 million to $76 million and $46 million to $22 million, respectively. Salaries and related staff costs, however, increased from $39 million to $91 million from the previous period. This resulted from the shift of work from consultants to salaried staff. Of the total amount of $91 million, annual salaries and allowances for the nine executives reporting to and including the Managing Director of FINSAC, its subsidiaries (REFIN Trust and RECON Trust) and Financial Institutions Services Limited, amounted to $42,416,004. Individual compensation packages for these executives ranged from $2.9 million to $7.2 million. 

A refund of $6.9 million was received from the Inter-American Development Bank as part of an overall grant. Legal fees in the year amounted to $24 million (1999 - $12 million). Other noticeable movements were depreciation and rental and maintenance, which moved from $4 million and $5 million in 1999 to $14 million and $13 million in 2000, respectively.

INTEREST COST
The major operating cost was interest on loans and advances. This changed marginally from $16.6 billion in 1999 to $15.0 billion in 2000 – a 10% reduction. Stock of outstanding fixed and variable interest-bearing liabilities, in the form of FINSAC bonds and advances from the Bank of Jamaica and the Government of Jamaica, increased substantially from $78.2 billion in 1999 to $114.6 billion in 2000. The mix of the portfolio shifted. The portion of the overall debt bearing a fixed interest rate, increased from 10% in 1999 to 15% in 2000. This change in the mix, coupled with a decrease in the variable interest rate, accounted for the overall reduction in interest cost. The variable rate is tied to the latest six-month Treasury Bill weighted average rate, and this rate decreased from 21.32% in 1999 to 17.96% in 2000. 

OTHER CHARGES
In addition to FINSAC’s operating loss, an additional amount of $7.5 billion (1999 - $2.5 billion) was charged off in the year to account for estimated reduction in the value of investments in subsidiaries and associated companies. Consistent with the loss recognition treatment adopted in FINSAC’s previous Financial Statements, provisions amounting to $8.1 billion (1999 - $3.2 billion) were made for possible losses on loans to, and deposits with intervened financial institutions.

ASSET COMPOSITION
Total assets grew by 27% from $19.3 billion in 1999 to $24.5 billion in 2000. Investments totalling $18.8 billion (1999 - $15.4 billion) and representing 77% (1999 – 80%) consist of investments in properties, subsidiaries and associated companies in the form of equities and long-term loans and advances.INVESTMENTSFINSAC interventions during the course of the year included the purchase of income-generating properties. In addition, investments in equities and long-term loans and advances increased from $47.19 billion in 1999 to $57.09 billion in 2000, before provision for reduction in value. Major increases during the year were:a) additional capitalisation of Union Bank of Jamaica ($2.8 billion);b) loans to Union Bank of Jamaica ($4.6 billion); andc) purchase of non-performing loans being managed by REFIN Trust ($1.4 billion).The level of provisioning increased marginally from 67% ($31.8 billion) in 1999 to 69% ($39.2 billion) in 2000.

LOANS TO FINANCIAL INSTITUTIONS
Grossed loans grew by 49% from $18.2 billion in 1999 to $27.2 billion in 2000. Six point five ($6.5) billion of this increase went to the insurance industry, since FINSAC assumed that part of the debt of the insurance companies resulting from the transfer of insurance policies from intervened institutions. Another $2.5 billion went to the banking industry. FINSAC also assumed the net asset gap of the vesting assets and liabilities of banks merged to form Union Bank of Jamaica. Provisions for losses against these loans increased from $15.1 billion in 1999 to $23.2 billion in 2000.

FUNDING
FINSAC’s source of funding consists of a combination of:• advances from the Ministry of Finance;• issuance of its own bonds and debentures; and• proceeds from divestments of assets and collection of loans through its two wholly owned subsidiaries (REFIN Trust and RECON Trust).

FINSAC’s liabilities to the Central Bank and Ministry of Finance increased in fiscal 1999/2000 from $20.5 billion and $7.9 billion to $27.4 billion and $16.3 billion, respectively. Liability resulting from the issue of its own bonds increased from $49.9 billion to $70.8 billion with capitalisation of interest during the period accounted for approximately $12.8 billion of that increase, and $8.1 billion representing a net increase in new principal issues.

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