Scotia Group aiming to up profits

Scotia Group headquarters in Kingston.

The 2019 fiscal year is turning out to be one of the best in recent times for the number 2 banking group in Jamaica – Scotia Group. The current year was not the best performing, but it delivered on many counts for the majority Canadian owned banking group.
Critically, the primary engine driving profits – loans, grew 12.6 percent, or $23 billion to $206 billion. According to the Managing Director, David Noel, “total loan growth remained strong throughout the period with a year over year increase of 13 percent. Highlights from our Retail Banking portfolio include a 17 percent year over year growth in our Scotia Plan loan portfolio. Our mortgage portfolio continued to perform well and grew 13 percent year over year as we continue to boast one of the most competitive mortgage rates in the market. Our total commercial loan book increased by 14 percent over the prior year. Of note, commercial loans to the private sector increased by 27 percent when compared to the same period last year.”
The group reports a net profit of $13.19 billion for the year to October, an increase of $419 million or 3.28 percent over the prior year. In 2018, the group booked gains on the sale of a subsidiary of $753 million, when this gain is excluded, net profit from ongoing operations increased by stronger 9.75 percent amounting to $1.17 billion.
Performance for the year was affected by lower net interest income due to declining interest rates and higher loan loss provision, following the adoption of a new accounting standard. Net interest income after expected credit losses for the year totaled $22.5 billion, down $767 million or 3.3 percent, compared to the prior year. Importantly, the group’s final quarter numbers show marked improvement in net interest income compared to the 2018 quarter. Net interest income delivered $6.4 million to the quarterly results compared to just $6 billion in 2018, while Net interest income after expected credit losses rose from $5.35 billion in the October 2018 quarter to $5.75 billion in 2019.
Scotia reports that “our credit quality remains strong and actual delinquency is down year over year, with loans on which there is no interest being booked for representing 1.77 percent of gross loans compared to 2 percent in the prior year.”
The Group reports, “operating expenses were also higher than the prior-year due partially to increased fraud-related expenses, as well as increased investments in technology and business optimization which we believe are necessary investments for the future.”
“We will continue to make investments in our infrastructure, including a $500 million investment to create a state of the art branch. Renovations have also begun at our head office building, where we are investing $1 billion to upgrade and modernize our facilities to create a more efficient and collaborative environment.”

Scotia Group’s Falmouth branch

Operating expenses for the year amounted to $24 billion for the period, an increase of $2 billion, or 9.54 percent compared to the prior year. Salaries and staff benefit costs increased by $697 million or 6.76 percent primarily due to increased incentives to the sales team resulting in the growth of in the loan portfolio, while other operating expenses grew by $1.37 billion. The growth in other operating expenses was attributable to increased technology investments such as ATM software, online banking enhancements, security chips for credit cards and network upgrade to support our digital strategy. Tax on assets increased by $45 million to $1.13 billion.
Segment results saw Treasury generating revenues of $8.2 billion up from $7 billion in 2018 with a profit of compared to $4.1 billion in 2018. Retail revenues grew to $18.9 billion up from $18.3 billion in 2018, with a profit of $3.6 billion compared to $4.9 billion in 2018. Corporate and Commercial banking saw revenues rise from $7.8 billion to $8 billion and profit hitting $1.4 billion in 2019 versus $2.75 billion in 2018. Insurance services grew revenues from $5 billion to $5.1 billion and generated a slightly higher profit of $3.97 billion from $3.8 billion in 2018. Investment Management generated revenues of $3.5 million and a profit of $2.3 billion in 2019 compared to $3 billion in revenues and profit of $1.8 billion in 2018. Other operations raked in revenues of $1.54 in 2019 with a profit of $1.5 billion, in 2018, revenues were just $1 billion with a profit of $965 million.
Other income for the year, other than interest income, increased by $3 billion or 17.97 percent over 2018. Net fee and commission income amounted to $8 billion, marginal declining of $22 million. Insurance revenues increased by $371 million or 12.64 percent to $3.30 billion due mainly to higher premium income year over year, partially offset by lower actuarial reserve releases, the group reported.
Net gains on foreign currency activities and financial assets amounted to $8.43 billion, up by $3.3 billion or 63 percent above last year due to increased market and trading activities. Deposits by the public grew to $313 billion, up from $288 billion in the previous year.
The Group’s shareholders’ equity stands at $118 billion from which the Board of Directors approved a final dividend of 55 cents per stock unit, or $1.7 billion, up from 51 cents per share in 2018. The current dividend is payable on January 15, 2020, to stockholders of record on December 24. The January 2020 dividend brings the total payment for the year to $4.76 after the group made two special dividend payments during the year.
The group reported earnings per share of $1.09 for the final quarter and $4.24 for the full year, earnings per share for 2020 should hit the $5 mark.
Scotia Group is a good stock for income and long-term growth.

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