COVID, war in Europe, rising inflation, higher interest rates, and supply chain problems all provided an unsettling environment for businesses.

Some didn’t fare well while others prevailed. Scotia Group Jamaica delivered a strong financial performance in 2022 which gave credence to its conservative approach, a belt and braces attitude to ensure one isn’t embarrassed with their trousers down by their ankles.

Scotia Group Jamaica proved that fastidiousness pays off.

Speaking at its recently held annual general meeting at the AC Marriott in St Andrew, Group Chair Anya Schnoor declared that the Group’s diversified business model focused on operational efficiencies and risk management.

Net profit for the year 2022 came in at J$11.7 billion, an increase of $3 billion or 35.2 per cent over the prior year, driven by high interest income and insurance revenue. What stands out here is its expense management with operating expense marginally up by just 1.8 per cent.

Scotia Group Jamaica’s loan book portfolio showed growth of 14 per cent while retail banking grew by 19 per cent with commercial banking increasing by seven per cent.

Of particular note is the loan growth of $29.3 billion, which Schnoor pointed out is one of the highest growth rates in that segment ever achieved.

“Of course, being a bank with such a large footprint, we cannot take a one-size-fits-all approach, especially across our segments and channels,’’ said the chairperson addressing shareholders.

The trust issue

Trust is a major issue for banks both locally and internationally. The Stocks & Securities Limited debacle and the collapse of Silicon Valley Bank clearly puts that issue into perspective. What entity do you, or for that matter, can you, trust with your money?

Schnoor did not shy away from the contentious subject and instead opted to take it on.

“Trust, robust governance, risk, and control procedures are vital in regulating financial entities. Some may feel that our governance and controls are onerous consisting of documented policies and procedures, but our systems and organisational structures ensures we keep the bank and our customers safe while complying with the highest standards of regulatory oversight globally. Scotiabank in its 133-year history in Jamaica has always sought to ensure it is a positive role model for financial development,” said the experienced banker.

Challenging environment

Scotia Group Jamaica has had to face some challenging headwinds. Rising interest rates, elevated inflation, the macro-economic slowdown in China, the on-going war in Ukraine.

Global growth is projected to fall from 3.4 per cent in 2022 to 2.9 per cent in 2023.

Inflation now abating is expected to fall from 8.8 per cent to 6.6 per cent this year, still above pre-pandemic levels of 3.5 per cent. For emerging markets and developing economies growth is expected to rise incrementally from 3.9 per cent in 2022 to 4 per cent in 2023.

Forecasting what is to come, Schnoor said: “Signs of monetary tightening is starting to push demand downward, but the full impact is not expected to be felt until 2024. For Jamaica, the rise in commodity prices led to strong inflationary impulses prompting the Bank of Jamaica to hike benchmark rates to seven per cent. Inflation has moderated somewhat in recent times.

“Despite these challenges, the Jamaican economy has proven to be resilient. We see the robustness in the service industries and tourism’s recovery will continue. I’m encouraged by the positive economic indicators and the impact it is having on employment and foreign direct investment (FDI) in our country.”

 A good performance

Group CEO Audrey Tugwell-Henry drew attention to Scotia’s EPS moving from $2.78 in 2021 to $3.75. Return on Equity was up on 2021’sw figure of 7.5  per cent to 10.4 per cent for 2022. Quarterly dividends in 2022 totalled $1.40 per share. The bank and building society combined had a capital adequacy ratio of 15.3 per cent with a capital position of $111 billion.

Total revenue excluding expected credit losses came in at $45.9 billion in 2022, up $5.3 billion or12.9 per cent compared to the $40.6 billion posted for 2021.

Tugwell-Henry explained: “This was attributable to growth in our loan portfolio contributing $5.9 billion to net income or a 26 per cent increase on the prior year. Insurance revenue was up by 15.3 per cent. The mortgage portfolio grew by 28 per cent to$61.7 billion. For the year under review total deposits grew by five per cent to $397.2 billion driven by growth in our retail and commercial deposit books.

“Scotia Insurance posted total revenues of $5.2 billion generating net income of $2.9 billion, an increase of $848 million, a 41 per cent increase year on year with a ROE of 20 per cent.

“Scotia Investments contributed $1 billion or nine per cent to the Group’s net income. Total revenues however reflected a reduction of $520 million or 15 per cent less than the prior year. This was primarily due to gains on financial assets given the assessment of fair value of the funds.”

Tugwell-Henry and her team must be commended for a good performance while having to contend with turbulent waters. It takes a good captain with good navigational skills.

Highlights from the AGM meeting

FRAUD

Scotia Group Jamaica shareholder and an investor in many listed companies Orette Staples beseeched the Chair and the management team to keep an eye on the likelihood of any fraudulent activity taking place in the Group’s operations. This comes against the background of a few fraudulent activities revealed in Jamaica’s financial sector, perhaps the most notable being the Stocks & Securities Limited scandal.

“We ask the CEO, the management team, the auditors to pay attention to anything suggesting fraud in the company. My concern is the high incidents of fraud involving females in the sector. Please females: this is a year where we all want to see you comply. Do not interfere with anything in the company and don’t do things that will disgrace it,” implored Staples.

This is a common refrain these days, but women in the sector shouldn’t have to wear this Scarlett Letter. It is wrong to point an accusatory finger at all women and not make the distinction between those who conduct themselves professionally and comply with procedures. A few bad apples shouldn’t be allowed to spoil the barrel.

CREDIT LOSS PROVISION

A question from Orette Staples:

“Credit loss provision has accounted for 40 per cent of the Group’s total assets. This has impacted net profit. What are you putting in place to reduce this expense, increase net profits and dividend payments?”

Group CFO Gabrielle O’Connor lent clarity to this question.

“This represents loans net of expected credit losses which come to $238 billion (40% of the Group’s total assets). We have a robust risk management process in place in the event that we have credit losses. We have recovery units that work in terms of following up and ensuring collections.”

Anya Schnoor added: “Scotia’s loans net of losses is 40 per cent of the Group’s assets not that its bad loans are 40 per cent of its assets. Its loans net of credit losses is 40 per cent of all assets (which include securities, buildings etc).”

Staples insisted credit losses are an expense to the company and should be reduced. Anya Schnoor shot back that Scotia’s credit losses are the lowest of any comparable institution in Jamaica.

SIMPLIFYING BANKING AND FINANCIAL JARGON

A shareholder made the call for Scotia to simplify and make its banking jargon clearer. Most common folk don’t understand it. There is a need for Scotia to make its messaging more understandable. She pointed to the increasing use of technology in the fraudulent manipulation of credit cards which Scotia must counter.

She called for the minutes of the previous AGM and briefings to be made available. The shareholder noted that the rise of women in corporations is being celebrated but don’t forget the men. With the number of fraudulent activity at Jamaican financial institutions, professional women must retain their integrity.

PRICE/EARNINGS RATIO

A shareholder pointed out that at the end of 2022, Scotia had a price earning ratio of 9.8 which is above what it normally is on the Jamaica Stock Exchange.

“Back in 2020, the P/E was 15.16 and last year it was 12.76. The stock is more valuable today. Can we now increase the price of the stock by perhaps a buyback? A valuable company should be reflected in the stock price.

A GOOD REVENUE AND PROFIT PERFORMANCE

Shareholder crunching the numbers and happy with the sums.

“In 2021, total revenues were $52 billion which came at a cost of $43.4 billion which generated a profit of $8.6 billion. For every dollar in 2021, it cost us 83 cents and we made a profit of 17 cents. In 2022 we made $61 billion in revenue which cost us $49.4 billion which gave us a profit of $11.7 billion. For every dollar in 2022 it cost us 82 cents and we made 17 cents profit. Incrementally for the period between 2021 to 2022 we earned $9.1 billion and that cost us $6.1 billion. We made a net profit of $3.1 billion. Of every dollar earned it cost us 67 cents and we made an incremental profit of 33 cents. Which means for all that revenue earned for the year, we were able to control our expenses hence profit went up.”