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Financial News

May 2009 Financial News

Higher credit loss provision, staff cost hit retail banking

May 27, 2009

Retail banking took a hit in the most recently reported financial quarter for commercial banks as increase loan loss charges and staff cost ate away the bottom line.

Both Scotiabank, which reported a $380-million improvement for its net profit for the April quarter of 2009 compared to the previous year, and National Commercial Bank (NCB), which made a less net profit during the March quarter this year than the comparative period in 2007, reported huge fall-offs in profit for their retail arm.

Scotia's retail arm saw its pre-tax profit halve from the comparative three months to April last year to $577 million. This was from $100 million less revenue.
NCB saw its retail arm make $120 million less but that was on $650 million more in revenue.

"Loan loss provision and staff costs those are the most significant reasons for the increase in expenses," said NCB group financial officer Yvonne Clarke in response to Business Observer questions.
"However, we had increases in other operating costs such as electricity, stationery and water."

Loan loss charges were $190 million more for NCB during the quarter when compared to the comparative quarter in 2008, while staff costs across the group rose by $300 million.

NCB's treasury and wealth management arms also fared badly, making $642 million less during the quarter than in the comparative quarter in 2008, while the group's corporate banking arm and insurance business combined saw a $500-million increase in operating profit.

Similarly Scotia's corporate banking arm and insurance business generating higher profits totalling $529 million more than the previous year's April quarter. But unlike NCB, its investment and treasury management arms collectively added $180 million more to the bottom line.

Scotia Group's staff cost climbed $442 million while its provision for credit losses jumped $360 million to $473 million.

Even newcomers, PanCaribbeanBank are feeling the pinch, although it grouped its retail and corporate arm in its segment results for the March quarter of 2009.

Retail and corporate banking made $10 million in pretax profit for the review quarter compared to $32 million during the corresponding period in 2008. That was from $60 million more revenue.

Philip Armstrong, deputy chief executive officer at Pan Caribbean Financial Services, said that the decline in retail profits was due to the bank's increased staff and technology costs.

"The decline is driven by the personal side. In March 2008 we were a merchant bank and we converted to a commercial bank so what that is reflecting is additional staff and the technology associated with getting the commercial bank up and running," he told the Business Observer.

"Those two things were primarily why expenses were higher," he added that the bank needs to grow its loan portfolio in order to offset the higher staff costs which will be recurrent.

"That is where the challenge comes in - in growing the credit portfolio. That cost becomes a (permanent) cost. So now with additional staff it's up to us to grow the loan portfolio."

Source: Jamaica Observer
http://www.jamaicaobserver.com/magazines/Business/html/20090527T010000-0500_152312_OBS_HIGHER_CREDIT_LOSS_PROVISION__STAFF_COST_HIT_RETAIL_BANKING.asp
Date:27-05-09