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Scotiabank Jamaica's headquarters in downtown Kingston, Jamaica.

Scotia Group Jamaica’s net income down as transaction volumes dip

Scotiabank Jamaica's headquarters in downtown Kingston, Jamaica.

Scotia Group Jamaica reported net income for the year ended October 31, 2020 of JM$9.1 billion compared to JM$13.2 billion for the previous financial year.

In a release attached to results for fiscal year 2020, the bank noted, “Excluding increased expected credit losses as a result of the COVID-19 pandemic, and a one-time restructuring provision, net income would be down [JM]$380 million or 2.4 per cent due primarily to lower transaction volumes arising from the global pandemic.”

The bank reported improved performance in its fourth quarter as net income for reached JM$3.5 billion — and increase of JM$1.9 billion or 125.6 per cent compared to Q3 2020 — primarily due to significantly lower provisions for credit losses of JM$2 billion.

Banking and mortgages

David Noel, president and CEO of Scotia Group Jamaica Limited, said, “Our performance this year was undoubtedly affected by the significant economic downturn caused by the global COVID-19 pandemic.

Scotia Group Jamaica Limited President and CEO David Noel (File photo)

“While the Group continued to maintain a strong underlying performance across our business lines, reduced transaction volumes along with increased provisions for credit losses (PCLs) under IFRS 9 had a material impact on our results particularly in Q2 and Q3,” he continued.

For the fourth quarter, Noel said while retail and commercial banking results would have been impacted by the PCLs, “we continued to see strong growth with the commercial banking loan portfolio increasing by 21 per cent versus the prior fiscal year”.

The president and CEO added that the company’s mortgage business also performed very well, with growth of 15 per cent year over year.

Noel reported a significant reduction in branch transactions, which accelerated due to measures adopted to address the pandemic.

“In keeping with those trends, we have converted six branches to a digital operating model, which focuses more on customer relationships and offering advice and solutions while facilitating cash transactions at ABMs,” he stated.

Scotia Digital Banking (Photo: Kalilah Reynolds)

“We believe these changes in our branch network reflect the evolving needs of our customers and gives them better choices based on the types of service they require,” he added.

Noel pointed out , too, that the newly renovated Scotiabank Centre branch has been designed with a ‘Social Zone’ outfitted with iPads to facilitate customer transactions.

Overall performance

Total revenues excluding expected credit losses for the year ended October 31, 2020 was JM$44 billion and showed a reduction of JM$1.1 billion or 2.5 per cent year when compared to 2019.

“In keeping with those trends, we have converted six branches to a digital operating model, which focuses more on customer relationships and offering advice and solutions while facilitating cash transactions at ABMs”

— David Noel, president and CEO, Scotia Group Jamaica Limited

Despite strong loan growth across the various business lines, total revenues were heavily impacted by lower net fee and commission income given the decline in transaction volumes as a consequence of the COVID-19 pandemic, lower net gains on financial assets and lower interest earned on securities.

Net interest income after expected credit losses for the year stopped at JM$19.0 billion — down JM$3.5 billion or 15.6 per cent year when compared to the previous year — and was primarily attributable to the increase in expected credit losses of JM$3.2 billion

Year-on-year insurance revenues declined by JM$293 million or 8.9 per cent year to JM$3.0 billion due to the reduction in premium income, which was partially offset by higher actuarial reserve releases.

Expected credit losses for the year showed an increase of $3.2 billion when compared to 2019. This was mainly driven by additional provisions based on revised assumptions incorporated in the impairment methodology given the COVID-19 pandemic.

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The group’s aggregate expected credit losses for loans as at October 31, 2020 was JM$8.0 billion, representing 167 per cent year coverage of total non-performing loans.

Operating expenses amounted to $24.8 billion for the year showing an increase of $702 million or 2.9 per cent year.

Management said that excluding Covid-19 expenses and restructuring provisions recorded, operating expenses would be down $309 million or 1.3 per cent year year over year.

Asset tax expenses, increased year over year by $63 million or 5.6 per cent year to $1.2 billion due to the increase in the Group’s assets.

The Group’s asset base increased year over year by $7.3 billion to $556.3 billion as at October 31, 2020.

Scotiabank Centre branch has been designed with a ‘Social Zone’ outfitted with iPads to facilitate customer transactions.

“This was predominantly as a result of the growth in our loan portfolio of $15.1 billion or 7.3 per cent year, and cash resources of $6.3 billion or 4.6 per cent year which was partially offset by a reduction in other assets of $13.4 billion or 19.4 per cent year per cent year,” the release stated.

Cash resources stood at $141.3 billion, increasing by $6.3 billion or 4.6 per cent year year over year.

Total liabilities were $445.5 billion as at October 31, 2020 and showed an increase over prior year of $14.6 billion or 3.4 per cent year driven mainly by increased customer deposits which was partially offset by the reduction in other liabilities and capital management fund balances.

Deposits by the public increased to $336.7 billion, up from $313.0 billion in the previous year. This $23.7 billion or 7.6 per cent year growth in core deposits was reflected in higher inflows from our retail and commercial customers.

The Board of Directors has approved a final dividend of 45 cents per stock unit, which is payable on January 20, 2021 to stockholders on record as at December 29, 2020.

The dividend is 35 cents higher than the dividends paid in Q3 due to the improved performance of the Group in Q4.