Scotia Group makes gains but still in recovery
Published:Friday | September 10, 2021 | 12:10 AM
Scotia Group Jamaica, SGJ, the second-largest banking conglomerate, reported $2.8 billion in net profit for the July 2021 third quarter, or nearly double last year’s levels, but still down by one-third over 2019 pre-pandemic levels.
“Recovery is imminent,” said SGJ President and CEO Audrey Tugwell-Henry at a press briefing held online on Thursday. “We are not there yet, but we feel it is imminent.”
That’s due to the expected recovery in the various segments of the group within a fairly optimistic economic outlook. But the path to recovery requires the group earning billions more both on the top line and bottom line.
Specifically, SGJ earned $9.6 billion in total operating revenue in the quarter, which was higher than the $7.8 billion in 2020 but lower than pre-pandemic level of $11.15 billion in 2019. It earned $2.8 billion in net profit during the quarter, which was higher than the $1.55 billion in 2020 but 32 per cent less than the $4.17 billion earned in the 2019 third-quarter.
Additionally, a major prong of the rise in profit in the quarter came from the group booking less non-cash expenses related to expected credit losses. For the quarter, the group booked $584 million in expected credit losses which signals an improved business climate going forward, especially when compared to the $2.6 billion in expected credit losses booked in the 2020 quarter.
SGJ Chief Financial Officer Michelle Wright said the expected credit losses are future-looking and incorporates assumptions of macro variables and expectations of the loan portfolio’s performance.
“We are very pleased with our financial results,” Tugwell-Henry said, referencing improvement in all major metrics.
The quarterly profit equated to $0.90 earnings per share versus $0.50 a year earlier, $1.34 in 2019, and $1.41 in the 2018 quarter. Consequently, the group improved its return on equity in the quarter to 9.57 per cent from 5.6 per cent a year earlier, 14 per cent in 2019, and 15 per cent in 2018.
The banking group’s loan book dipped in value to $216 billion from $222 billion a year earlier, but mortgages rose 11 per cent. Tugwell-Henry said the group isn’t concerned about its mortgage exposure. The bank credits the growth in the mortgage line to the realisation of a strategy outlined years earlier to give greater mortgage-lending ability to individual bank branches.
The pandemic led to a rise in unemployment, except for the construction and outsourcing industries.
“We have to make sure that we are meeting the customer where they have their biggest needs. So, we are not concerned about the mortgage growth. The growth is planned, and we intend to grow more in this area,” said the bank president. “We have a growing mortgage base, we have a huge consumer loans base of unsecured loans and auto loans, and we have a large credit card portfolio. So we believe that the risk is very well diversified, and we are satisfied with the structure of the portfolio,” she said.
The group’s non-performing loans, those unserviced for over three months, were estimated at 2.7 per cent of total loans, slightly higher than the 2.1 per cent ratio a year earlier, but lower than the industry average of 2.9 per cent, Scotia Group said.
The group holds more cash on its books, at $146 billion, than the value of the group itself at $116 billion. Tugwell indicated that the cash provides SGJ with flexibility to quickly disburse loans to the market.
“It provides a great platform to accelerate growth in our loan programme. We see our high levels of liquidity as a signal that this is a safe institution. Having this high level of liquidity allows us to extend credit to the market, and that’s an important component to the recovery,” she said.