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Big banks offer best returns amid profit dip

Published:Friday | February 5, 2016 | 12:00 AMSteven Jackson

Investors in the big banks earned their largest returns from the two stocks last year at a time when the banks' annual profit fell, a review of their medium-term performance shows.

In 2015, National Commercial Bank Jamaica (NCB) shareholders received a return of 66 per cent compared to 43.5 per cent for the owners of Scotia Group Jamaica (SGJ). The analysis incorporates stock price appreciation and dividend distributions. Its data that both banks compiled in their annual reports.

The rise in NCB's stock price contributed to the better returns alongside a more generous dividend payout at "$2.31 per share or $5.7 billion". That's up from $2.9 billion in the prior financial year, according to data in NCB's annual report released this month.

The dividends 'paid and proposed' from Scotia Group amount to $1.62 per share or $5.04 billion in total for 2015, and $4.97 billion the previous year.

Which of the banks offered better returns over a medium-term horizon depends on the period under review.

Over the past five years, NCB comes out on top with combined returns of 97 per cent versus 83 per cent for SGJ. Interestingly, though, SGJ offered more consistent returns to shareholders in the period, with negative returns in one of the five years compared to two of five for NCB.

When the review period narrows to the past three years, SGJ shareholders got more returns at 56 per cent compared to NCB at 47 per cent.

"Shareholder returns for the three and five year horizons were largely influenced by the 83 per cent rise in the Jamaica Stock Exchange (JSE) index for the year ended October 2015," said the SGJ annual report released last week to the JSE.

The JSE offered the highest returns for investors globally in 2015.

NCB's stock price gained 53.4 per cent year on year to close at $27.50 at September 30, 2015, the close of its financial year. Scotia Group shares gained 39.7 per cent year on year to close at $26.87 on October 31, 2015, the close of its financial year.

SGJ explained that over the last five years roughly two-thirds of the returns to shareholders came in the form of dividends. "We remain focused on achieving sustainable, long-term earnings growth and maintaining stable dividend income streams to our shareholders," stated the SGJ annual report.

Scotia Group made net profit of $10.1 billion in 2015 compared to $10.82 billion in 2014 due to lower margins and increased asset and corporate income taxation. NCB group made $12.3 billion last year compared to $12.32 billion in 2014 due to reduced share of profits of associates and the non-recurrence of one-off gains from negative goodwill on acquisition of a subsidiary and gains from the disposal of an associated company.

NCB's annual profit previously peaked at $13.88 billion in 2011, while Scotia Group peaked at $11.9 billion in 2013.