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Scotia Group Q3 profit surges to $4b

Scotia Group Jamaica Limited, SGJ, raked in just over $4 billion in profit, net of expenses, for the three months ending July 2022, which was 43 per cent more than the approximately $2.8 billion it recorded for the similar period last year, and 54 per cent better than its profit performance in the previous quarter ending April.

The improved performance came on the back of double-digit revenue growth. Net income grew 15 per cent to $8.4 billion, over the similar period last year, and was 55 per cent higher than in its April quarter this year, aided by improvements across all banking segments, except investment management services.

Scotia Group said there was growth across its core business lines, supported by “prudent” cost management.

Total revenues, excluding expected credit losses for the nine months ended July 31, 2022, was $33.6 billion, an increase of $1.9 billion, or 5.9 per cent, over the prior year comparative period, Scotia Jamaica reported. Much of this increased revenue came from interest income, which grew by $3.3 billion or 19.7 per cent, driven, the banking group said, by an increase in interest earned on its investment portfolio and improved retail loan volumes.

Scotia Group has not officially announced an increase in loan rates to date as the market adjusts to increased policy rate movements by Bank of Jamaica. SGJ President and CEO Audrey Tugwell Henry says the loan rate adjustments have been done in consultation with borrowers, and that adjusted rates on loans had not been the main driver of the bank’s revenue and profit growth.

“Our rates reflect market conditions and our business strategy. What we have done is, where there are variable rates, mainly on our corporate and commercial books, we have adjusted, in line with discussions and negotiations with our clients. We continue to review the pricing that we apply to our loan on an ongoing basis,” Tugwell Henry said at a media briefing following the release of the financials.

“Certainly at the corporate and commercial levels, that negotiation happens with individual clients. So there is not a broad-brush approach to our pricing strategy,” she added.

Overall, the bank’s loan portfolio increased by $3.6 billion, or 1.7 per cent, compared to July 2021, with loans, net of allowances for credit losses, increasing to $220 billion.

Its core loan book continues to perform well, the bank reported, with mortgages increasing year-over-year by 25 per cent and consumer loans by 13 per cent.

The improvement in loan performance, the bank said, is largely on a rebound in the economic environment.

Deposits also climbed by eight per cent.

In line with loan growth, Scotia Group’s expected credit losses for the period showed an increase of $187.8 million, or 9.4 per cent, when compared to the third quarter of 2021. The group’s accumulated credit loss provisions for loans as at July 2022 was $5.2 billion, representing 140.6 per cent coverage of total non-performing loans. This is no indication of worsening loan quality, the banking group maintains.

“From time to time we do adjustments to model for expected credit losses, and what was done for this quarter is that, given that we are operating in a high interest rate environment, the model was tweaked to ensure that we fully capture all the securities that we are currently holding. That uptick that you are seeing is primarily driven by the securities portfolio, in the interest of being conservative,” SGJ Chief Financial Officer Michelle Wright said.

“But this by no means is an expectation of what actual delinquent loans will be. In fact, our non-accrual loans, which are loans past due more than 90 days, as a percentage of gross loans were down 100 basis points. As at July, that ratio is 1.7 per cent, compared to 2.7 per cent last year,” she added.

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