Scotia Jamaica now better able to fund large corporate loans
SCOTIA Group Jamaica says it is now in a better position to fund large corporate loans as a result of Bank of Jamaica (BOJ) measures to ease a liquidity crunch that has gripped the local financial system and impacted commercial credit.
Tight Jamaican dollar liquidity conditions emerged in the local financial system last year following a confluence of shocks, including the National Debt Exchange that stretched out maturities of bonds, fiscal consolidation and the impact of the Central Treasury Management System (CTMS). Scotiabank president and CEO Jacqueline Sharp admitted at the bank's annual general meeting last week that the liquidity crunch, particularly in the latter half of 2013, had impacted its net interest margins.
"What that caused was an increase in deposit rates and funding costs as we tried to gain liquidity from each other, so that would have had an impact on spreads," Sharp told shareholders in response to a question about its first quarter ending January 31, 2014 financials.
Sharp added that funding of some larger loan demands would have been delayed as a result of the tight liquidity situation. The Jamaica Bankers' Association had noted back in September that members were having a challenge financing projects as a result of the problem. And the Economic Programme Oversight Committee, which monitors Jamaica's Extended Fund Facility under the International Monetary Fund, last month cited the slowdown in lending as a major cause for concern.
The BOJ has addressed the situation through a number of measures the last several months, including the introduction of an overnight liquidity standby facility, a 14-day repurchase operations and more recently a six-month repurchase funding facility. According to Sharp, those initiatives have had a noticeable positive impact.
"We have seen improvements, particularly in the last week, and so we are expecting that we will be able to meet the loan demands that we are seeing and will be able to fund the larger corporate loans," Sharp said, noting that the bank is anticipating growth in its corporate loan book.
"We do see huge opportunities in the commercial space and we have a healthy pipeline that we are pursuing," the Scotiabank boss revealed.
Scotia reported net income of $2.54 billion for the first quarter ended January 31, 2014, marginally below the corresponding period last year. Net interest income after impairment losses for the period was $5.7 billion, down $134 million or 2.3 per cent.
Scotia posted impressive results for its October year end, with annual net profit jumping by 12 per cent to $11.9 billion against the background of a slash in earnings across much of the financial sector due to the national debt swap. The financial institution earned nearly 60 per cent of its profit from banking, 19 per cent from investment management and 21 per cent from insurance services.
The Group's total assets increased year over year by $31.1 billion or nine per cent to $389 billion as at October 31, 2013. Its loan portfolio grew by nine per cent to $12.3 billion, with a major contribution coming from the 'switch-for-free mortgage' programme by the building society, which now holds 17 per cent of the retail mortage market, Sharp said.
Deposits grew by 13.6 per cent, up from seven per cent growth the year prior.
"Our core deposit base remains strong, reflecting customers' confidence in the brand and its reputation for safety and stability," Sharp said, noting that all segments of the bank's deposit base registered increases.
What's more is that the financial institution continued to enhance its customer service offerings, Sharp noted, specifically highlighting the launch of its premium banking unit at the Scotiabank Financial Centre in Constant Spring.
"The premium banking service offers personalised attention and advice from a team of a dedicated relationship managers in a comfortable and private setting," she said.
The Scotiabank president also noted that the bank installed 15 automated banking machines (ABM) last year, and now has the most ABM machines in the sector, with more than 230.
Going forward, Sharp said the financial institution expects economic growth to continue to be weak and business conditions to remain challenging. Among the priorities, she said, will be targeted growth in retail and small business markets, sales execution and the generation of new products, while paying keen attention to special account and overall delinquency management.
"Having had the benefit of 125 years of experience, we understand the challenges facing the country and are able to take a long-term view and see the potential that lies yet ahead," said Sharp.
"We are confident that our core strengths in managing risks and expense control, together with our very strong capital base, will continue to serve us well, allowing us to weather any potential storms while we fulfill our mission of helping our customers become financially better off."