Scotia Bank Trinidad & Tobago hit a new 52 weeks high recently in the price of its stock, so what is happening at the bank to warrant the move in the stock price? Last year the stock was selling at $60.86 in April and on June 24, 2013 it sold at $70.01, a 15 percent rise, yet profits have not been growing all that well. However, the bank raised its dividend from 32 cents per share quarterly last year to 40 cents this year.
Interestingly, the fortune of the Trinidad bank and that of its Jamaican counterpart are tracking similar paths. In Jamaica, profits for Scotia Group have not grown from 2009, almost the same has happened in the Trinidad bank, with no growth since 2011. It looks as if the trend will continue for the Trinidad bank this year as well.
For the six months to April this year, Scotia Trinidad profits just barely budged above the results for the same period in 2012. Net Interest income fell from $462 million in 2012 to $443 million in 2013 but other income rose from $172 million to $224.5 million. The bank was able to keep a lid on expenses which rose from by $24 million to $314 million leaving a profit before tax of $353 6 million some $10 million more than that earned in 2012.
After allowance for taxation of $83 million, net profit rose to $273 million up slightly from $268.7 million in 2012. In the latest April quarter, after tax profits grew by only $1.9 million to reach $128.9 million.
The bank seems to have a good grip on loan quality as provisioning bad loans is very low at just $8 million for the six months, an improvement over the $10.5 million in 2012.
Return on Equity | The bank boasts a return on equity of 17.27 percent for the six months period, down from 18.47 percent for the full twelve months for 2012 financial year, which ended in October.
Where is the growth? | For profits to really grow attractively, the bank must grow its loans and assets at a faster pace than it has been doing since 2009. Loans to customers climbed by to $10 billion up from $9.96 billion in October but is flat with April 2012. Deposits did better as these rose to $13.47 billion up from $12.77 billion in April and $12.9 billion in October last year. Loans on the books in October last year contracted compared to the previous year by $700 million or 7 percent. Assets grew by 4 percent in 2012, 5 percent in 2011 and one percent in 2010 down from 11 percent in the previous year. The bank reported of assets of $18.4 billion and equity capital of $3.2 billion.
The bank operates in an economy that is yet to recover from the recession that started in 2008. A lot of the growth a few years prior to 2008 was induced by a major boost in the construction sector, which left newly built units that took awhile to either occupy or sell. This has been a serious drag on the construction sector and by extension, slowed growth in the economy. Without economic growth, bank lending will be slow, which is the main area for growth in income. GDP performance is as follows: 2009, minus 3.3 percent, 2010, 0 percent 2011, minus 1.3 percent, 2012, a positive 1.7 percent. The construction sector fared even worse falling by 7 percent in 2009, 28 percent in 2010 and 8 percent in 2011.
Stock outlook | Against this economic background, it appears that investors cannot expect to see electrifying growth in profits for some time. They also have to be aware that interest rates on savings are at very low levels and any upturn could affect the valuation of stocks on the Trinidad stock market further down the road.
