By Al Edwards, Financial EditorWILLIAM CLARKE took up the position of managing director of Scotiabank Jamaica in 1995. Under his stewardship and in less than ten years he has seen Scotiabank become the pre-eminent banking institution of the country. It was unscathed by the financial sector crisis of the nineties, largely as a result of sticking to core banking practices and remaining resolute in its ethical conduct. So-called liberalisation did not entice it into adopting methods and practices that would see it run aground on rocks of expediency and instant gratification.
Speaking at a Mayberry Investor's forum last month, Mr. Clarke gave an insight into how Scotiabank conducts business and divulged a few secrets of its success.
Scotiabank began operations in Jamaica some 115 years ago, coming from the fishing centre of Nova Scotia in Canada. When Scotiabank came to Jamaica, the then Colonial Bank was the Government's bank of choice. That bank eventually evolved into Barclay's Bank. It wasn't long before Scotiabank became the Government's banker, replacing Colonial Bank. "We have primarily held that position ever since." It was hard for the English to understand how a bank from a little Canadian fishing village could become the Government's preferred banker.
"Our branch at 35 King Street was our third location, our first at the corner of Harbour and King streets was destroyed by a fire. The headquarters of Scotiabank was at 35 King Street up to 1974 when it moved to its present location which is situated at the corner of Duke and Port Royal streets.
WHAT WE DO
"Commercial banking is our lifeblood. We have other complementary businesses such as a building society, Scotia Jamaica Building Society which was formed in 1994. Today it has 12 per cent of the market. We realised that the two biggest building societies were cornering the market and we felt the time was right for us to get into the housing market. We did shake up the market some five years ago when interest rates among building societies came down to around seven percentage points in one year, largely due to a certain action we took. We might have benefited somewhat, in terms of new business but the consumers in the real estate market really were the ones who benefited.
"Our subsidiaries were all formed to do specific things. Scotia Investments which was formerly known as Scotia Trust now focuses on securities trading and investment management. The old trust and registration services and other related businesses have been supplanted by major earners. To be quite frank, if businesses don't make money we aren't for it. We are in the business of making money and we have no apologies for that. The Minister of Finance once asked me, 'Aren't you embarrassed when you make these vast profits?' I said, not at all, one third of it goes to the Financial Secretary, and she is not embarrassed, so why should we be."
Scotia Investment Management is now focused on what the market demands in terms of investment management services. The insurance brokerage service can be regarded as the baby of the group, it has launched into commercial activities and is contending with some big clients. It is now attempting to find its own identity among its competitors.
"The most remarkable bit of investment expansion we have undertaken recently is when we bought Scotia Jamaica Life Insurance Company five years ago. Our thinking was savings in the form of pass-books and so forth was not the way to go. Consumers were looking for other investment opportunities. Scotia Jamaica Life Insurance Company was formed to offer long-term savings for people with an investment appetite. This company has done very well and is by far the largest premium earner collector on the island. We don't do the type of business the big insurance companies do but the type of product that we offer makes us number one in that category.
"We are number two or three in just about any other measure the insurance industry uses. What is interesting is that our subsidiary companies accounted for 25 per cent of our bottom line. This is even more remarkable when you consider when they were formed and the impact they have had in that time period."
WHAT IS THE CORE PURPOSE OF SCOTIA BANK?
"Our core purpose is to be the best at helping our customers to become financially better off. We believe in relationships rather than transactions. We look at win-win propositions. There are certain fundamental principles that we adopt because we take our fiduciary responsibilities very seriously, and people will tell you that we are tough to do business with. If you are going to buy a car, we say that your equity input in the vehicle should be so much and we are quite prepared to partner with you on the rest. Whatever you get into a car, a house, a business I want to see the colour of your money to be sure that you are serious.
"When a guy tells you, 'I want to start a business and I'm
giving you my house as collateral', that's a serious guy. We don't like to liquidate collateral, we like to be able to hand your collateral back. We demand of our customers that they meet certain criteria for doing business with us.
"The experience of the financial sector crisis proved that at the worst of times our non-performing loans as a percentage of the outstanding loan was 7.5 per cent. In terms of assets, it was about two per cent. The situation that existed elsewhere speaks for itself."
PRODUCTIVITY RATIO
It is all very well pointing to profitability but it is the productivity ratio, which is the measure of what it cost for every dollar of revenue earned, and BNSJ places huge stock in that determinant. This is driven by the professionalism of BNS personnel and how they ultimately deliver. At the end of October 2003, the productivity ratio posted by BNSJ was 49.46 per cent, one of the best in the financial sector. Included in that 49.46 per cent is the operations of the insurance company. If one took out the insurance company from the mix then that productivity ratio figure drops to around 40 per cent. For the last 10 years, the parent company in Canada has been trying to keep its productivity ratio below 60 per cent.
DIVIDEND YIELD
If one examines the dividend yield of BNSJ over the pass five years it tells the story for investors. The bank had an exceptional year in 2003 and at the end of that year it paid a special dividend to its shareholders. The dividend yield was 11.55 per cent, which is quite impressive compared with other comparative entities.
"I hear a lot of discussion about our stock price. We can't get involved in talk about the price of our stock, our responsibility is to deliver the earnings. The market has to determine the price of the stock. Well, it now seems that the market holds the view that there is value to be obtain in having the stock," Mr. Clarke said.
As of yesterday BNSJ stock traded as high as $62.99 but in terms of P/E ratio Mr. Clarke is not very impressed and he believes that there is a lot of value that still remains on the table.
SCOTIABANK'S FUNDAMENTALS
The success of Scotiabank is rooted in a number of core principles. It focuses primarily on core banking activities, namely retail, commercial and the recently-added subsidiaries. It prides itself on excellent risk management.
"We take the stance that if you don't provide us with up to date financial statements, and by that I mean 90 days from the last year end, then that is likely to have an adverse effect on your loan proposition and we are serious about that. What we are saying is that if we don't understand your business by the statements you provide we cannot provide a bankable proposition. We have to understand the business as much as you do.
"Our staff will tell you that we manage expenses to the bone. The expense of people is your largest overhead stationery, utilities it all adds up but it must be noted that our staff are the best paid in the business. We take pride in recognising and rewarding performance.
"We don't take the view that employees who have the same number of years service should be compensated equally we don't believe in that and we have even got our trade union to understand this in the challenges we face with collective bargaining. We stress performance, and that determines what's in your pay packet."
CUSTOMER SERVICE
"We are never able to provide the level of service that our customers deserve. Firstly, there are so many customers that we have, and we therefore have to undergo a myriad of process changes to ensure that our customers are treated as they should be treated."
Mr. Clarke regards customer service as the linchpin of his bank's business and endeavours to maintain a high level of customer service, though that in itself is challenging as a result of the high volume of clients that it has. There are many potential customers eager to set up accounts. It is a problem many retail banks would like to have.
SCOTIA LIFE
Scotia Life's recently-released first quarter results show net income of $400 million (up 197 per cent). This five-year-old company accounts for 12 per cent of the bottom line for the entire group. This company essentially sells two products Scotia Mint, which sells long-term saving products, and Credit Alliance, which provides insurance for its retail services. After five years in the business, the gross premium collected has been more than satisfactory. The Minimum Continuing Capital and Surplus Requirement (MCCSR) is a barometer used to determine the solvency of a financial entity and the Financial Services Commission (FSC), has deemed that by the year 2010 one should have a MCCSR ratio of 150 per cent. Scotia Life has a MCCSR ratio of 692 per cent. Its Gross Premium Income stands at $1.17 billion and it has some 77,849 policies in force.
SEE PART 2 NEXT WEEK
RECENT SUCCESSES
Scotiabank has made a significant investment in technology in order to make it more efficient. Today 75 per cent of savings withdrawals are done through ABMs'. Mr. Clarke said that the bank would like to see an equal amount of people making deposits through ABMs' but that is not likely to be any time soon. TeleScotia was innovative but it has to some extent been usurped by Internet banking. Merchants have warmed to the Point Of Sale (POS) instruments, so much so that it puts many businesses behind the eight ball if they do not have this facility. More notably the cash management services for large commercial clients has proved to be an undoubted success. This allows clients to manage their own funds without the bank's intervention. You dial in through a PC and you have access to your funds enabling you to make your own investments. Clients through the private banking division have benefited tremendously from Internet banking which was introduced earlier this year.
Last year Scotiabank undertook a comprehensive restructuring of its operations regarding its support units to improve service delivery. A lot of its back office operations takes place at its Trafalgar Road building. This frees up the branch network to concentrate on front office interaction with customers, and it also provides support to the network.
Eighty-five per cent of Scotiabank's staff are women and women form 45 per cent of the management cadre. Of the senior executive management pool, women comprise 23 per cent reflecting the growing presence of women in corporate Jamaica.
"The women are highly qualified, far more committed and they don't have the excuses we guys tend to come with, like not delivering a project on time. We believe in hiring the best person for the job."
