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Scotia expects loans to heat up as inflation cools in Christmas

It’s still early September but as the summer draws to a close Scotia Group Jamaica Limited is already looking towards the promise of new business in the Yuletide season, by which time inflation is expected to be back under control.

The No 2 banking group’s loan portfolio is already growing at double-digit levels, amid which it recently launched a new credit card service aimed at big spenders.

The banking group earned $5.3 billion profit in the July third quarter, up 47 per cent higher than a year earlier, relative to its restated accounts for the previous year. However, earnings dipped by 32 per cent once the baseline is compared with the original $4 billion profit in 2022.

The restated profit amounted to $3.6 billion following adjustments for new accounting rules regarding long-term insurance contracts.

The profit in July came without fair value write-downs, which in turn resulted in higher total comprehensive income. Consequently, the banking growth reported a nine per cent improvement in capital to $113.8 billion.

“We are very optimistic on the outlook,” said SGJ President and CEO Audrey Tugwell Henry at an investor briefing on Monday.

The bank is projecting stable interest rates and inflation going into Christmas, which would increase consumer confidence to seek out loans to meet their needs.

“The peak period is December towards the first week in January. We expect credit card receivables and bank loans to continue to grow,” said Tugwell Henry in response to queries on loans and credit card balances.

“We welcome that growth because based on how we manage the risk we do not expect any fall-off in the quality,” she said.

The bank’s loan portfolio grew 18.5 per cent to $259.6 billion up to July, and hovers at record levels. Tugwell Henry is sanguine about the ability of customers to continue repaying loans and credit card bills, saying Scotia’s non-performing loans stood at 1.6 per cent of the total portfolio, down from 1.7 per cent.

“There is no concern with the delinquencies in that line of business. We have absolutely no concern,” she said.

The new Scotiabank American Express Platinum credit card launched last month charges interest at 34 per cent on local currency transactions.

Across the banking sector credit card balances have risen 21 per cent to $73.5 billion to April, according to central bank data. That’s among the fastest rise since at least the mid-1990s, based on datasets analysed by the Financial Gleaner. What’s unknown is whether the growth is mostly a factor of new business as opposed to customers deferring payments.

That said, lenders plan to reduce the level of available credit going forward. The tightening reflects plans by some institutions to increase interest rates, fees and the loan monitoring requirements, according to the Bank of Jamaica.

“For the September 2023 quarters, lenders plan to reduce the amount of credit made available for personal lending due to a reported increase in risk aversion,” the BOJ Credit Conditions Report stated.

Data tracking credit conditions show that for 2023, the top ‘drivers of the demand for unsecured credit’ were interest rates followed by changes in personal income. A year earlier personal income did not factor as a top five reason.

The onset of the pandemic in 2020 initially resulted in a reduction in credit card receivables, but then in 2021, the debt started rising again. The rise coincided with inflation which surpassed 11 per cent at one point in 2021.

Prior to the pandemic, from 2009 to 2019, credit card receivables inched up by about $1 billion a year, or well within single-digit growth levels, BOJ data show.

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