Thu | Dec 7, 2023

Scotia Group profit dips on one-off charges

Published:Wednesday | December 15, 2021 | 12:06 AM
President & CEO Scotia Group Jamaica Limited, Audrey Tugwell Henry.
President & CEO Scotia Group Jamaica Limited, Audrey Tugwell Henry.

Scotia Group Jamaica, SGJ, posted $8.4 billion in annual profit, down six per cent due to one-off charges related to digital offerings and slowing revenue due to pandemic lockdowns.

Discounting those charges, earnings would have been flat year-on-year, according to the executives of the No. 2 banking group.

“The two impacts to our profit numbers were the tempered demand for loans and the one-off charge for strategic reorganisation for the business,” said President & CEO Audrey Tugwell-Henry at a media briefing on Monday.

“The results were impacted by a one-time restructuring charge, but this charge is strategically important to us, because it will allow us to right-size and realign our business to meet the changing demands for our customers,” she said.

She added that the group’s investment in technology and distribution transformation supports SGJ’s long-term strategy for growth. Digital and electronic transactions account for 96 per cent of total retail transactions up to October 2021, with 4.0 per cent reflecting traditional over-the-counter transactions in branches. Additionally, 94 per cent of all commercial transactions are done digitally and/or electronically.

The group did not disclose the size of the restructuring charge, but indicated that it fell within the $3.25 billion in other operating expenses in the quarter, compared to $2.7 billion a year earlier.

Were it not for special costs, then “we would be on par with last year impact of pandemic,” added Chief Financial Officer Michelle Wright in response to Financial Gleaner queries.

Total revenues over the financial year ending October 31 amounted to $37.8 billion, down from $38.2 billion. SGJ stated that revenues were “heavily impacted” by the COVID-19 pandemic. This weakened loan demand within an already-low interest rate marketplace contributed to a reduction in the group’s net interest income, lower net fee and commissions, and insurance revenues, the banking group said.

After the close of the financial year, however, the Bank of Jamaica, BOJ, which regulates commercial banks, raised its policy benchmark rate to 2.0 per cent in mid-November from 1.5 per cent. This followed on from an initial BOJ rate rise from 0.5 to 1.5 per cent, effective September 30. The rate hikes are aimed at stemming inflation and pulling it back within the target range of 4-6 per cent. The next interest rate decision is due on December 20.

Tugwell-Henry said Scotiabank has not fundamentally adjusted rates as yet to match the movement in the policy rate.

“It is still early days yet. The BOJ just made those announcements a few weeks ago. We are basically looking at the landscape, but we have not made any concrete or final positions as of now,” Tugwell Henry said.

Dr Adrian Stokes, SGJ head of investments and insurance, added that the group will be able to respond adequately to inflation and the central bank’s policy rate adjustments.

“We will be able to pivot based on market conditions, so you should not see any adverse impact on the organisation based on a rate increase. We can adjust to ensure that we are responding to our customers,” he said.

In the October fourth quarter, Scotia Group profit fell precipitously to $1.1 billion, compared to $3.5 billion a year earlier.

The outlook for 2022 remains positive, but challenges of new COVID-19 variants and the economic impact remain.

Scotia Group grew its cash holding over the past year, from $141 billion to $168 billion. Its loan portfolio declined from $220 billion to $208.5 billion.

“Loan repayments, coupled with lower loan demand in light of the global pandemic, accounted for the year-over-year movement,” the bank explained.

The non-accrual loans, NAL, which refers to loans not being serviced by clients, rose to $6 billion at year end, from to $4.8 billion in 2020. As a percentage of gross loans, Scotia Group’s NAL ratio was 2.8 per cent, up from 2.1 per cent, but remains well below the industry average of under 10 per cent.