Scotia Group’s profit surprise

Scotia Group Jamaica was the one exception of the financial institutions to buck the trend of lower profit resulting from the write-off of fair value investments gains from the debt swap of Government of Jamaica bonds in February.

The banking group reported improved results for the second quarter of the 2013 financial year to April, with net income of $2,930 million, $210 million above the previous quarter and $214 million above the quarter ended April, 2012. For the six months ended April, 2013, net profit was $5,651 million compared to $5,364 million for the same period last year. Profit available to shareholders was $5.47 billion, resulting in earnings per share of $1.76, this is after the group took a one time charge of $397 million for the write-off of fair value securities gains.

Net interest income | After impairment losses for the period, Net Interest Income was $11.13 billion, up $341 million or 3%  compared to the same period last year. For the quarter, interest income and interest cost declined but net income fell compared with the January 2013 quarter by $470 million and was marginally up on the similar quarter for 2012 by $48 million. The reduction in interest rates that obtained after the debt swap would have been a major contributing factor to the decline. A partial switch in the portfolio from Jamaican dollar denominated investments to foreign currency ones would also be a contributing factor as foreign exchange gains climbed to $955 million versus $526 million in the first quarter.

Other Revenue | For the six months Other Revenue was $5.5 billion, up $858 million or 18.6% compared with prior year due to increased insurance revenue and fee income gains on securities trading as well as higher gains on foreign currency trading and investments.

Operating Expenses | $9.11 billion for the quarter, an increase of $1 billion or 13% over prior year. Staff related costs represented $439 million (10.2% increase), other operating expenses increased by $606 million reflecting primarily inflationary increases, devaluation of the Jamaican dollar and the impact of new tax measures.

Non-performing loans | (NPLs) at April stood at $5 billion, $440 million less that at April 2012, an increase of $270 million over January this year, the increase is a charge against the income for the year to date. During the six months period in 2012, the bank recovered a large corporate loan that was classified as non-performing during 2011, resulting in a net charge in 2012. Total NPLs is down to 3.88% of total gross loans compared to 4.83% last year and 3.82% as at January 2013 due greatly to the growth in the loan portfolio.

Balance Sheet | Total assets increased year over year by $33 billion or 9.46% to $382 billion as at April this year. Loans grew by $16.2 billion to $127.26 billion. Customer liabilities (deposits, repo liabilities and policyholder’s funds) grew to $294 billion, an increase of $28 billion over last year. As per the management report, “This growth was mainly reflected in the deposit portfolio as we continued to acquire new customers and see increased balances from existing customers.”

Bruce Bowen, President and CEO said, “Scotia Group generated strong results for Q2 with continued growth in all of our key business lines. Our culture of prudent risk management and strong liquidity enabled us to weather the challenges in the market during the quarter. Looking forward, the National Debt Exchange (NDX) has reduced margins and recent tax measures have increased operating costs. To offset these effects we are focused on deepening our relationship with clients and growing our customer base, while improving operating efficiencies and maintaining tight control of expenses.”

Bowen went on to say, “In times of turmoil in the financial sector Scotiabank is known for providing Jamaicans a safe place to bank. With the addition of Scotia Investments, Scotia Jamaica Life Insurance and Scotia Jamaica Building Society, and our commitment to providing a great customer experience, I believe that we can truly help our customers be financially better off. If we focus on our customers we are in an excellent position to build market share during this difficult economic period.”