Wednesday, August 27, 2008

Bill Clarke's last hurrah - Scotia ahead in profit race

Published: Tuesday August 27, 2008

Scotia Group Jamaica Limited continues to top the market in earnings, reporting big profits of $7.14 billion so far this year, according to its latest earnings report for the nine-month period ending July 31.

The banking group, now in leadership transition, improved its profit performance by 32 per cent, year on year, to trounce chief rival and second most profitable stock market company National Commercial Bank's $6.7 billion.

President William 'Bill' Clarke leaves the bank at the end of October, at the close of its financial year. Replacement Bruce Bowen is in place at the bank's corporate headquarters on the Kingston waterfront, and, according to bank sources, already running the show.

Big improvement

The July quarter was also a big improvement relative to the 2007 three-month period, but was more than $300 million below the previous quarter.

The bank also reported a bigger loan portfolio, but alongside it a substantial hike in non-performing loans - described by Scotia as "a reflection of the trend in the eco-nomy" - has outdistanced the group's loan loss provisions.

The bank was no more specific about the cause, and central bank chief Derick Latibeaudiere has denied a causal link at his August 20 quarterly monetary policy briefing, but there is market speculation that commercial banks will see more loans going bad as more unregulated investment schemes fail.

Trading activities

In the past week, another of the so called clubs, F1 Investments Inc - whose holdings are intertwined with Olint and May Daisy Corporation - has told investors it has reduced trading activity, commenced an audit of two of its funds to be completed in a month, and would report back to its members on October 3. In the meantime, F1 said it would accept no deposits nor pay returns.

Scotia otherwise has recorded strong growth in its key markers in the nine-month period. Revenues blazed to $28.7 billion, up $6 billion relative to the comparative nine-month period in 2007. Net interest income rose 29 per cent to $15.8 billion, while operating profit climbed 28 per cent to $21 billion. This despite a substantial 26 per cent rise in expenses which climbed to $11 billion notwithstanding Clarke's comment that the bank held a tight grip on expenses in the period.

Clarke, in a company statement accompanying the earnings report, said the group continued "to demonstrate strong performance in all business lines".

Its core business, banking, accounted for 64 per cent or $4.4 billion of profit, the insurance arm contributed 23 per cent or $1.6 billion, its 68 per cent ownership of Scotia DBG Investments added another $603 million of the $936 million net profit reported by that company, while its mortgage company contributed $339 million.

The banking group's balance sheet was also considerably stronger by 12 per cent at $286.5 billion - enhanced in part by an expanded loan portfolio, which grew more than 10 per cent to $82 billion.

Company's performance

Weighing on that performance was the $590 million added to its bad loans.

Scotia Group's total non-performing loans reached $2.6 billion against the regulatory requirement of loss provisions of $2.044 billion.

For the Bank of Nova Scotia Jamaica (BNSJ), non-performing loans climbed above $1.8 billion, against provisions of $1.646 billion.

"The BNSJ group's non-performing loans now represent 2.35 per cent of total loans and 0.82 per cent of total assets, compared with 1.76 per cent and 0.62 per cent respectively, in the prior year," said Scotia.

Still, the big bank has declared itself capable of weathering the turn of events, saying its past performance demonstrates continued growth in the loan portfolio and a strong credit policy.

Central banker Latibeaudiere, whose posture last week was that the banking system was healthy, said one of the indicators of this was continued growth in deposits.

Both Scotia and NCB have progressed on this front: NCB by nine per cent to $119 billion; Scotia by 12 per cent to $148 billion.

Source: Trinidad Express Newspapers

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