June 10, 2021
Scotia Group Jamaica Limited (SGJ) reported a decrease in Net Interest Income to $11.30 billion, moving from $12.48 billion for the corresponding period in 2020. Notably, Interest Income for the period decreased from $13.71 billion in 2020 to $12.25 billion. Interest Expense declined 23% to total $948.92 million (2020: $1.23 billion). Net interest income for the quarter amounted to $5.51 billion relative to $6.31 billion reported in 2020. Management noted, “Total revenues continue to be heavily impacted by the COVID-19 pandemic as evidenced by the ongoing reduction in interest rates offered in the market and lower transaction volumes, which have contributed to a reduction in the Group’s net interest income, lower net fee and commissions as well as insurance revenues.”
The company reported Expected Credit Losses of $1.41 billion compared to a loss of $2.67 billion for the comparable period in 2020.
As such, Net Interest Income after Expected Credit Losses on loans rose 1% to $9.90 billion relative to the $9.81 billion recorded for the corresponding period in 2020. SGJ noted that the increase in Net Interest Income after Expected Credit Losses on loans, “was primarily attributable to the reduction in expected credit losses of $1.3 billion. Prior period results included higher provisioning given the revised assumptions incorporated in the impairment methodology, in conjunction with the adoption of a more prudent approach in determining credit loss provisions.”
Total Other Revenue increased by 11% to $10.22 billion versus $9.20 billion recorded for the six months ended April 30, 2020. Total other revenue is broken down as followed:
o Net Fees and Commission Income amounted to $3.04 billion (2020: $3.43 billion), a 12% decrease relative to the corresponding period in 2020. According to SGJ, “The year over year decline noted in fee and commission revenues was primarily attributable to lower transaction volumes stemming from the COVID-19 pandemic in conjunction with the continued execution of the Group’s digital adoption strategy geared towards educating customers about our various electronic channels which attract lower fees.”
o Insurance Revenue declined 30% to closed the period at $1.33 billion relative to $1.91 billion last year. SGJ attributed the movement to, “the reduction in premium income stemming from the pandemic as well as lower actuarial reserve releases.”
o Net Foreign Currency Activities increased 28% to $4.55 billion from $3.55 billion booked for the six-months ended April 30,2020. The Company attributed the movement to, “higher trading volumes and revaluation gains.”
o Net Gains on Financial Assets went up to $307.77 million relative to $290.15 million recorded for the same period in 2020.
o Other revenue increased from $18.93 million in 2020 to $988.63 million booked for the comparable period in 2021. SGJ noted that, this “was attributable to gains realized on the extinguishment of debt facilities.”
Total Operating Income for the year to date increased 6% to total $20.11 billion versus $19.01 billion for the corresponding period in 2020. Total Operating Income for the quarter amounted to $9.31 billion (2020: $8.84 billion), reflecting a 5% increase when compared to the comparable quarter last year.
Total Operating Expenses for the period amounted to $13.36 billion, a 3% growth from the $13 billion booked in 2020. As for the quarter, total expenses amounted to $5.59 billion, 5% decline year over year from the $5.88 billion reported in 2020.
Under operating expenses:
o Salaries and Staff Benefits decreased to close the period at $5.05 billion (2020: $5.45 billion).
o Property Expenses (Including Depreciation) fell by 3% amounting to $1.19 billion (2020: $1.23 billion) when compared to 2020 six months period.
o Amortization of Intangible Assets decreased 17% to close the period at $48.98 million versus $58.72 million booked in 2020 corresponding period.
o SGJ reported asset tax of $1.22 billion, 2% more than the $1.20 billion documented for the first six months ended April 30, 2020, “given an increase in the Group’s assets,” as per SGJ.
o Other Operating Expenses increased by 16% closing the period at $5.85 billion relative to $5.06 billion. Management noted, “The increase noted in other operating expenses was due to provisions for non-salary related restructuring and other technology expenses.”
Profit before Taxation for the six months totaled $6.76 billion, this represents an increase of 12% from the $6.02 billion recorded in 2020. For the quarter pre-tax profit rose 26% to $3.72 billion (2020: $2.95 billion).
Tax charges for the six months totaled $2.27 billion (2020: $2 billion). As such, Net Profit for the period totaled $4.48 billion, 12% more than the $4.02 billion posted for the same period in 2020. Net profit for the second quarter closed at $2.73 billion relative to $2.23 billion for the same quarter of 2020.
Total Comprehensive income for the period amounted to $10.33 billion compared to a loss of $2.28 billion in 2020. For the quarter, total comprehensive income amounted to $5.53 billion relative to a total comprehensive loss of $5.59 billion reported for the second quarter of 2020.
Earnings per share (EPS) for six months totaled $1.44 (2020: $1.29). EPS for the second quarter amounted to $0.88 versus $0.72 reported for the second quarter of 2020. The trailing twelve months EPS amounted to $3.07. The total number of shares employed in our calculations amounted to 3,111,572,984 units. Notably, SGJ’s stock price closed the trading period on June 09, 2021, at a price of $40.34 with a corresponding P/E of 13.15 times.
Management noted, “Other noteworthy highlights within the Group’s performance included another quarter of solid growth in mortgages with an 11% increase y/y. We have maintained several quarters of consistent growth in our mortgage portfolio, even during the heights of economic fallout due to the COVID-19 pandemic. This is a function of market demand as well as our attractive rates and simplified processes. We continue to prioritize this portfolio as home ownership remains one of our customers’ top financial goals. During the quarter, we continued to build momentum in our Capital Markets business recently acting as Lead Arranger and Co-Broker to successfully raise J$3 billion by way of a Private Bond Placement for a major client. This deal marks our continued commitment to deliver unique value for our clients that is both meaningful and sustainable. We see tremendous opportunities in this area by providing solutions that will create capacity for reinvestment and growth as the economy begins to recover.”
Notably, “The Group continued to advance its Customer First strategy which is underpinned by investments in technology to improve customer experience. We continued to enhance our digital offering with upgrades to online and mobile channels to make everyday banking more convenient and safer for customers. Customers continue to embrace our award winning digital platforms which offer the benefit of convenience and safety in light of the pandemic. Branch transactions now represent just 4.6% of total transactions processed, while electronic channels account for 95.4%. One significant new feature introduced within the quarter was our online account opening process which was launched in mid-March. Existing personal banking customers can now open an additional bank account in under 5 minutes using online or mobile banking platforms – with no need to visit a branch. Close to 15,000 customers have opened new accounts using one of our online channels since the launch,” as per SGJ.
Looking ahead, the company notes,” In Q3, we will continue our Customer First focus by making further enhancements to improve customer experience, engagement and support. Further upgrades will be made to our current network of 279 ABMs, and additional intelligent deposit machines will be deployed over the next few months. Digital banking will continue to be at the forefront of our business as technology continues to redefine the status quo. We are optimistic as the economy continues to show signs of recovery and stand ready to support our customers as they rebound and pursue new growth opportunities.”
Balance Sheet Highlights:
As at April 30, 2021, the company’s assets totaled $573.51 billion (2020: $538.97 billion), 6% more than its value a year earlier. The increase in total assets was primarily driven by increases in ‘Cash Resources’ by $43.84 billion to total $135.80 billion (2020: $91.96 billion). ‘Retirement Benefit’ increased by $4.03 billion to a total of $39.48 billion (2020: $35.45 billion). The overall movement was reduced by a $8.42 billion decline in ‘Loans, After Allowances for Impairment Losses’ which closed at $214.69 billion (2020: $223.11 billion) and a $5.90 billion decline in ‘Other Assets’ to $4.69 billion (2020: $10.59 billion).
SGJ’s shareholders’ equity at the end of the period amounted to $118.44 billion relative to the $112.41 billion recorded in the prior year’s corresponding quarter. Consequently, the book value per amounts to $38.06 (2020: $36.13).
Disclaimer:
Analyst Certification -The views expressed in this research report accurately reflect the personal views of Mayberry Investments Limited Research Department about those issuer (s) or securities as at the date of this report. Each research analyst (s) also certify that no part of their compensation was, is, or will be, directly or indirectly, related to the specific recommendation (s) or view (s) expressed by that research analyst in this research report.
Company Disclosure -The information contained herein has been obtained from sources believed to be reliable, however its accuracy and completeness cannot be guaranteed. You are hereby notified that any disclosure, copying, distribution or taking any action in reliance on the contents of this information is strictly prohibited and may be unlawful. Mayberry may effect transactions or have positions in securities mentioned herein. In addition, employees of Mayberry may have positions and effect transactions in the securities mentioned herein.