Jun 2008 Financial News

Is Scotiabank still No 1?

Jun 13, 2008

The latest numbers are out, but with a difference. This time, central bank industry data on the commercial banking sector has given National Commercial Bank a new edge - a weightier capital base than chief rival Bank of Nova Scotia Jamaica (Scotiabank) at the end of March 2008.

NCB has long surpassed Scotiabank in total assets, but its liabilities have also been more expansive, at least in the years following its 75 per cent acquisition in 2002 by AIC Limited, a Canadian mutual fund company owned principally by billionaire Michael Lee Chin.

But in a sector of six commercial banks capitalised at $59 billion - the industry data deals with core banking business - the Patrick Hylton-led NCB now claims $20.7 billion or 35 per cent, while Scotiabank has a billion less, $19.3 billion or 33 per cent of total capital.

King of capital

Jamaica's two largest banks have been here before.

In the year that Lee Chin took control of the bank, then a floundering institution that had been rescued by government, then sold, NCB's assets outpaced Scotiabank's by only one billion dollars at December 2002, but its liabilities were smaller.

The upshot: a bigger capital base of $11.8 billion, against Scotia's $9.6 billion.

A year later, Scotiabank reclaimed the slot as king of capital, while also creaming more than $10 billion of the near $20 billion growth in bank deposits the sector reported at December 2003.

Since then, the jostling for market share has been intense, with the rivalry playing itself out in the small business credit sector, the $14 billion credit card market, consumer loan market and more recently wealth and asset management, through top brokerage NCB Capital Markets run by Chris Williams, and Scotia DBG Investments led by Anya Schnoor.

Maintaining an edge

But while the NCB has been growing robustly in key areas, Scotiabank under the direction of William 'Bill' Clarke, has managed to maintain a certain edge. It remains the most profitable banking group - consolidated net income was $7.6 billion in 2007, growing at a rate of about 23 per cent per year in half a decade; NCB group made $6.6 billion, but its rate of growth was a more spectacular 69 per cent per annum within the same period, putting momentum on its side.

GROWTH BY ACQUISITION

NCB is determined to "innovate" its way to growth, ostensibly from 'first to market' products.

"At NCB we regard innovation as a top priority for driving growth. We seek to foster a strong entrepreneurial culture where ideas can be generated and shared freely," said its annual report. "This has led to several notable 'firsts' by NCB in the markets we serve."

Clarke and Scotia Jamaica chairman Robert Pitfield have signalled a shift in strategy, from organic growth to acquisitions, and is on the hunt for bargains in order to stay ahead of the game.

"For the past 10 years, we have focused primarily on generating organic growth through process improvement, increasing customer satisfaction and product innovation," said their joint statement published in the company's 2007 annual report.

"However, our ability to pursue multiple paths to growth is a Scotia Group hallmark.

Acquisitions, when the risks are in line with the potential rewards, provide us with a strategic avenue for growth. We therefore remain committed to seeking out and taking advantage of these opportunities as they become available."

Strong capital position

Scotia reaffirmed that plan at the release of its April quarterly earnings report, saying in the accompanying statement to shareholders that it was maintaining "a strong capital position" in order to "take advantage of future growth opportunities." The bank's last big buy was investment bank Dehring Bunting and Golding, now renamed Scotia DBG.

Clarke has delivered more than profits in 13 years at the helm. He maintained the bank's number one position as lender, and its dominance as the key recipient of customer patronage via deposits.

Scotiabank's loan portfolio topped $70 billion in March, giving it a 35 per cent share of the $192 billion market; its deposits of $127 billion overshadowed rivals to claim about 40 per cent of the total $322 billion spread throughout the sector.

NCB's loan portfolio was valued at $61 billion or 32 per cent of the market, while deposits of $115 billion give it 36 per cent share in that segment.

NCB over the past five years has closed the credit gap, but not by much. In 2002, there was an $11 billion spread in loan portfolios, with advantage to Scotiabank, now reduced to less than $9 billion.

NCB lays claim as the first bank to breach the $1 billion mark in deposits back in 1983. But it is Scotiabank that is now $12 billion ahead in deposits, double the $6 billion advantage it had at the end of 2002.

Historic ties

Both banks became operational in Jamaica in the 1800s; NCB as an English-owned bank which would go through a series of acquisitions. It claimed its current identity in 1977.

The Jamaican banking sector is currently valued by assets at $507 billion, to which NCB contributes $195 billion and Scotiabank $170 billion.

The two banking groups have already reported six month financial results that continue to give Scotiabank a narrow edge on earnings - $4.7 billion of net profit compared to NCB's $4.5 billion.


Source:
lavern.clarke@gleanerjm.com
Jamaica Gleaner
Friday June 13, 2008

http://www.jamaica-gleaner.com/gleaner/20080613/business/business11.html