Mar 2012 Financial News

Benefits for Scotiabank shareholders

Mar 01, 2012

PRUDENT financial management was the basis for Scotiabank TT’s decision to make a 41.4 percent dividend payout to shareholders for the financial year ended October 31, 2011.

This was the explanation given by Scotiabank TT Chairman Brian Porter in response to a shareholder’s comment that other local banks had made dividend payments of almost 60 percent, during the bank’s Annual General Meeting (AGM), held last Friday at the Hyatt Regency, Port- of-Spain.

During the question and answer session of the AGM, one elderly gentleman questioned the bank’s near minimum dividend payout. “You’ve accumulated reserves more than adequate to provide for the bank. You have billions of dollars in reserves and yet the shareholders are not getting the type of dividend payment that is the norm of the banking system in Trinidad.

“(Yet) you were very clear at the last (AGM) to quote the normal banking procedures in Trinidad when it came to salaries and fees...of your directors. The point is, the other banks in Trinidad have paid 60 percent of their profits in dividends. Your bank has paid the minimum; 41.4 percent, so my question to you is ‘Why are you paying such a very low percentage of your profits to the shareholders when your profits are so high and you’re not in sync with the other banks’ payments in Trinidad?’,” the shareholder questioned Porter.

Scotiabank TT’s chairman reminded the man that at the 2011 AGM, the Board of Directors stated the dividend payout range was between 40 and 50 percent. Porter also said the actual percentage paid out could be above or below said range, depending on the economic outlook at the time of payment.

“We’re concerned about the overall economic outlook. Things are getting better but we’re not an island unto ourselves in terms of how we operate in the financial system and I think that’s been clear to a lot of people, a lot of institutions over the last four, five years in terms of contagions through the financial system.

“We’re comfortable with our capital levels, our liquidity levels, our risk profile. We have good, solid, discussions about the dividends that you’d expect every quarter. What concerns us right now is there’s excess liquidity in the Trinidadian market and loan demand growth is very low. We’d like to see loan growth come back to more normalised levels (then) we’d feel more comfortable about increasing the dividend. And we believe that is being prudent,” Porter stated.

The chairman’s explanation was met with some scepticism by the same elderly shareholder, who said “Mr Chairman that’s all very well but your competitors are in the same market and they’re paying 60 percent of their profits in dividends.”

The 2011 end -of -year and 2012 first quarter results under discussion by the shareholder and Porter were earlier broken down by Scotiabank TT’s Managing Director, Richard Young.

“The Scotiabank Trinidad and Tobago Group delivered a decade of consistent earnings with a ten year Compounded Annual Growth Rate of 13.60 percent, with a year-on-year increase of 6.89 percent, with an After Tax Profit of TT $544.3 million.

“The bank on its own improved its earnings by 12 percent and ScotiaLife delivered a 23 percent increase and now contributes 15 percent of the Group’s earnings. ScotiaLife is now the 4th largest Life Insurance Company in Trinidad and Tobago,” Young noted.

Looking at the first quarter results of 2012, Scotiabank TT’s managing director said total assets now stand at TT $16.6 billion, with an after tax profit of TT $141.6 million. Young said that was an improvement of six percent over 2011 and that Earnings Per Share (EPS) was 80.3 cents, with a dividend payment maintained at TT $0.32.

“This represents a 39.85 percent dividend payout. There is a strong capital ratio of 31.96 percent with cash reserves of $1.2B, so we continue to have strong liquidity. All these are positive indications that the rest of 2012 has the potential to be yet another successful year for Scotiabank Trinidad and Tobago Limited albeit challenging,” Young explained.

He credited Scotiabank TT’s continued growth, the increase in EPS and Return On Assets (ROA) and improved productivity to five key principles - Revenue Growth, Capital Management, Prudent Risk Management, Appetite and Cost Containment and of course, Leadership.

Meanwhile, Porter said the bank expects the local economy to grow around 1.5 percent this year.

That’s just below the February 10 growth projection made by the International Monetary Fund (IMF) Mission to Trinidad and Tobago.

According to Mission chief and Deputy Division Chief of the IMF’s Western Hemisphere Department, Judith Gold, “there is concrete evidence that the economy is turning the corner and that economic growth will resume in 2012, notwithstanding the ongoing technical disruptions in the energy sector. Real economic activity is projected to increase by 1.7 percent in 2012.”

Asked about excess liquidity being mopped up by this projected improvement in the local economy, Porter said banks could expect to see a growth in loan demand if business people gain confidence about the future.

“(Increased) loan growth will come as confidence builds in the economy...Once business people become more positive about the outlook, invest in plants and equipment, hire people, then we can make some loans,” Porter stated.

The low demand for loans in recent years was reflected in a slight drop in Scotiabank TT’s Return on Equity (ROE) for 2011.

The year before (2010), ROE was 22.04 percent but in 2011 it dropped to 20.68 percent. Asked about the reason for this, Young cited the excess liquidity.

“We have all this capital sitting there, really not being utilised as it was in the past. so there was less earnings on the equity in 2011,” Young stated.

However Young’s boss, Porter, told shareholders the bank had confidence the next two years would see an improvement in the local and regional economy, particularly since economic activity was expected to increase in 2013 in the US and other trading partners.

“Let me be clear on our perspective,” Porter said, “we believe things are getting better. We see momentum in the region. Scotiabank has been around for 180 years, and more than 120 years in the Caribbean. Over those long periods, we’ve been through many crises. And one of the things we’ve learned is that crises do eventually end. While we are concerned with the current economic challenges, Scotiabank is in our view, well positioned for success.”

The chairman of Scotiabank TT credited the bank’s major presence in developing markets; namely Latin America and Asia where economic growth is strong, for his confidence in its ability to do well over the next two years and beyond.

“We have a game plan for continuing to grow in these key areas, and we’re right on track,” Porter declared. Scotiabank’s share price as of February 24, 2012 was TT $51.98, up from $50.00 at end of calendar year, October 31, 2011. That meant the bank’s market capital went from $8.8 billion to $9.2 billion.


Source:
By Sasha Harrinanan
Newsday
Thursday March 1, 2012

http://www.newsday.co.tt/businessday/0,156182.html