Scotia reclaims top spot but court case weighs on bottom line
Core banking activity at the Scotia Group Jamaica increased but its annual profits was close to flat year-on-year at J$10.57 billion due in part to provisioning for a court case linked to the financial sector meltdown of the 1990s and the asset tax by Government.
The silver lining for Scotia Group is that it bested chief rival National Commercial Bank Jamaica in the profit wars. Having lost the top spot in 2010, Scotia made more profit this year than NCB's J$10 billion.
Additionally, while Scotia's profit fall was marginal at approximately J$42 million, NCB's streak was broken by a spectacular J$3-billion drop in net profit relative to 2011.
The court case that Scotia has provisioned for relates to a case that the banking group is appealing. Action was brought by an unnamed financial entity linked to the 1990s financial meltdown.
The courts recently found against the Scotia subsidiary, Scotiabank Jamaica Trust and Merchant Bank Limited (SJTMB), in the sum of US$14.8 million plus interest to which Scotiabank has appealed.
"We took the decision in second and third quarter to put a provision against it based on legal advice," Bruce Bowen, President and CEO told the Financial Gleaner, while declining to reveal the provisioned amount.
"We didn't fully provide for the US$14 million, but our accountants put some type of provision seen as adequate," he said.
He acknowledged that were it not for the provision, Scotia Group would have posted greater profits year-on-year.
"Core earnings did very well in a difficult market. It was a very strong year and it saw the shifting of our balance sheet from securities to loans. So it was a good year," Bowen told the Financial Gleaner.
The just released unaudited financials did not disaggregate such provisions but only revealed impairment losses on loans.
"The dispute involves the proceeds of the sale of security that happened during the 1990s," Bowen said.
The financials in Note 11 stated that litigation judgment was received in a long outstanding claim filed in April 1999 against SJTMB for breach of contract and negligent performance of contract in connection with an alleged undertaking given by SJTMB in May 1997.
Scotia financials stated that while SJTMB is a wholly owned subsidiary of Scotia Investments Jamaica Limited (SIJL), any liability arising from this claim will be assumed by The Bank of Nova Scotia Jamaica Limited, a subsidiary of Scotia Group Jamaica Limited.
"Notwithstanding the strong grounds for appeal, management has considered it prudent to make some provision in the accounts of BNSJ for the year ended October 31, 2012," stated the financials.
The banking group also reported progress on its non-performing loan portfolio, which fell by J$706 million to J$4.55 billion at yearend October 2012. Total NPLs now represent 3.65 per cent of total gross loans compared to 5.15 per cent last year, the company said.
Total loans grew by J$22 billion or 22.6 per cent year-over-year to J$122 billion, and the bank's deposits grew by J$16 billion to J$161 billion. Its capital base rose by J$4 billion to J$64 billion.
"All of our business lines continued to produce solid results over the last quarter," said Bowen in the release accompanying the financials. He has been president and CEO of Scotia Group since November 2008.