One-off gains push up Scotia’s profit

Scotia Group reports growth of 24 percent in net profit to $11.2 billion for the nine months to July, but importantly, profit jumped a strong 37 percent in the July quarter, over that of 2017 to $4.4 billion as net revenues climbed in the quarter by $940 million and costs were effectively flat.
While the results are impressive, especially in light of recent years of weak growth, the improvement is boosted by what could be considered as one-off income. The nine months profit that grew by $2.2 billion over the similar period in 2017, inclusive of gains on the sale of a subsidiary of $750 million. In addition, the group enjoyed above average foreign exchange trading gains, partially as a result of the relatively sharp slippage in foreign exchange rate of the Jamaican dollar. Excluding, the exceptional income profit would be modestly up from the results of the prior year.
The year’s operations was impacted by lower cost and lower income in some areas while income for some other segments grew. Total revenues excluding impairment losses on loans for the nine months to July increased 10.7 percent to $33 billion, over the prior year. “While there were increased loan and transaction volumes across the business lines, this was offset by reduced net interest margins as a result of lower interest rates,” the group’s CEO and President, David Noel stated in the report to shareholders. Net interest income after impairment losses for the period was $17.9 billion, compared to $18.44 billion the same period in 2017. For the quarter, net interest income declined by nearly $460 million before loan impairment losses, to $6.3 billion and by $427 million after to $5.68 billion.

David Noel new Scotia Group’s CEO.

Net fees and commission income was $6.1 billion, down $477 million or 7 percent compared to last year, impacted by the ongoing shift from branch transactions to online and mobile transactions which Scotia states, “attract lower fees,” Insurance revenue increased by $135 million to $2.4 billion or 6 percent, due to growth in core insurance business and actuarial reserve releases from changes in assumptions on valuation of the portfolios. Net gains on foreign currency activities and financial assets amounted to $4.6 billion, up $2.5 billion, more than 100 percent compared to last year based on increased market activities and revaluation gains. For the quarter, net fees and commission income dipped to $2 billion from $2.17 billion, gains on foreign trading jumped sharply from $570 million to $1.95 billion due partially to the sharp depreciation of the Jamaican dollar. Gains in financial assets rose from $228 million to $598 million but insurance revenue fell from $567 million to $525 million.
Operating Expenses of $16.3 billion for the nine months, increased $145 million or just 1 percent compared to prior year. Salaries and staff benefit costs declined $414 million, while other operating expenses grew by $575 million. For the quarter cost rose from $5 billion to $5.07 billion as staff cost dipped slightly to $2.45 billion from $2.68 billion.
Loans and advances grew 6.3 percent, with loans after impairment losses increasing to $176.9 billion since the end of the previous fiscal year in October but grew a stronger 3.7 percent between April and July quarter. Impairment losses on loans were down $310 million or 21 percent from last year, due to lower provisioning requirements on a reduced non-accrual loan portfolio as the quality of credit portfolio continues to improve.
An interim dividend of 48 cents per stock unit payable on October 24, was declared. Scotia is trading on the Jamaica Stock Exchange at $62 on Tuesday with a PE of 13.5 times 2018 earnings from continuing operation around $4.50 per share.

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