Aug 2010 Financial News

Scotia earnings fall

Aug 27, 2010

SCOTIA Group Jamaica reported marginal losses on net income for the quarter ending July 31, 2010, with earnings declining across all segments.

For the third quarter, net income for the Group, which comprises Scotiabank Jamaica, Scotia DBG Investments and Scotia Jamaica Life Insurance Company (SJLIC), was $2.3 billion, $295 million lower than the $3.2 billion recorded for the same period last year. A decrease in net interest income of $1.4 billion or 21 per cent was offset by an 18 per cent improvement in fees and commission income from $923 million in 2009 to $1.1 billion in 2010, mainly as a result of gains from the insurance segment.

"Having seen the impact of the JDX, our focus has been on trying to shift the reliance away from net interest income, particularly income from GOJ securities, towards more sustainable fee-based revenue," Scotia Group CEO Bruce Bowen, told investors yesterday at an Investor Briefing held at the Group's Training Centre, Acadia Boulevard in Kingston.

Consequently, the Group saw non-interest revenue of $5.5 billion for the quarter, comprised of $1.56 billion in insurance revenue from SJLIC and $1 billion from commercial and depository fees. An increase of $100 million in investment management fees also contributed to the fee income growth.

The gains on revenue from insurance was due to the actuarial gains of $700 million of the insurance subsidiary. This, based on administration fees, increased sales of credit insurance, the individual health policy, Criticare and the retirement scheme, ScotiaBridge.

"This represents the first full quarter of post-JDX results with significantly reduced yields on our securities portfolio, while at the same time our customers continue to face financial challenges given the weak economic environment," said Bowen. "These results are due to our continued focus on providing quality financial products and great service to our customers, and this has reflected in our growing market share in most key product lines," he added.

Being the first commercial bank to reduce interest rates following the JDX has helped to offset the effect of loan losses on the loans portfolio of the Group. Loans, after making provisions for losses, were $94.39 billion at the end July 2010, down just $900 million from the 2009 quarter. Bowen said Scotia currently holds the largest percentage of loans, a result of the lower interest rates that the firm shot out of the gates with following the JDX.

"Looking forward, we shall continue to focus on building core earnings while prudently managing credit and balance sheet risks and improving efficiencies across the Group," Bowen added.

SJLIC contributed 41 per cent of the $7.4 billion in net income attributable to shareholders over the period, while the bank contributed just over 44 per cent. However, net profit for SJLIC reduced 40 per cent quarter on quarter from $1.2 billion to $731 million, while profits for the bank fell $784 million or 28 per cent quarter on quarter.

Scotia DBG, the firm's wealth management arm, did not fare better with profits falling by $148 million or 30 per cent to $338 million.

"While this result was less than the amount earned in the same period last year the key factor affecting this negative variance was the recognition this year of deferred tax on the difference between our interest income and interest expense," explained Scotia DBG CEO, Anya Schnoor.

"This is a requirement under the IFRS accounting standard. This one item resulted in an increase in taxation of $258 million in 2010 versus 2009, accounting for most of the difference year over year," she added.


Source:
BY ALICIA ROACHE
Jamaica Observer
Friday August 27, 2010

http://www.jamaicaobserver.com/business/Scotia-earnings-fall_7908316