By Ashford W. Meikle, Staff Reporter 
Clarke... Scotiabank to stick to core banking. - Winston Sill/Freelance Photographer
DESPITE A small rise in its gross operating revenue and a dip in its net profits for its
first quarter (to January 31), Scotiabank Jamaica (BNSJ) will not deviate from its core banking operations, says its chief executive officer, William E. Clarke.
"Our earnings are from core business; as a consequence they are sustainable, as we expand the various business lines. Volatility in earnings are inconsistent with prudent banking practices, therefore, we do not have to boost our earnings by trading in the equity or fixed-income market."
His remarks were made at
the bank's 38th annual general
meeting, which was held last Friday at the Jamaica Pegasus Hotel, St. Andrew. Mr. Clarke's remarks are interesting, in light
of the fact that Scotiabank's rival, National Commercial Bank, had half of its first-quarter profit from a subsidiary, the brokerage and securities trading outfit, NCB Capital Markets.
Mr. Clarke's vigorous defence of BNSJ's conservative, risk-averse business operations is commendable. But, as the bank's interim three-months report
indicates, Scotiabank like the entire banking sector faces challenging times.
Compared to the same period
last year, the bank's overall
revenue base grew. Gross operating revenue was up by seven per cent (to $6.2 billion), while income from its core operations interest income grew by almost five per cent, to $5.4 billion.
However, the gains recorded by increased revenues were shaved off by the interest expenses which the bank had to pay on deposits. As a result, net interest income plummeted by almost 13 per cent, to $3.3 billion, compared to the $3.8 billion which the bank earned in the first quarter to January 2004.
NORMALITY
This situation is not unique to BNSJ in fact, the decline in core revenues has become the norm for financial institutions these days, principally as result of the shrinking spreads caused by declining interest rates. Mr. Clarke acknowledged as much in his statement accompanying the results. "The economic environment continues to be challenging and interest margins have
contracted, due to the lower level of interest rates."
The situation is not likely to change soon. A little over a week ago, the central bank slashed the interest rates on its open market instruments for the second time in just six weeks. It was a move applauded by ratings agency, Bear Stearns. Based on the
government's target of a single-digit inflation rate, one can expect further reductions by the Bank of Jamaica during the rest of the year.
Notwithstanding the bane of contracting interest margins, the bank demonstrated its resilience with increased revenues from other sources, which jumped by 27 per cent to $874 million. The healthy increase was caused mainly by the impressive gains in net fee and commission income, which climbed to $586 million, an increase of 25 per cent.
Foreign exchange gains which moved to $207 million, 47 per cent jump, also contributed to the increase in other income. However, revenues from its insurance arm, showing signs of fluctuation, fell by almost four per cent to $77 million.
EIGHT PER CENT DECLINE
Nevertheless, the healthy increase in other income was not enough to cushion Scotiabank from posting an eight per cent decline in its operating income, which dropped to $4.1 billion.
Still, in spite of its declining profits, the bank's management must be commended for the tight lid that it has maintained on
cost control. However, while
operating expenses barely registered any increases, Scotiabank's pre-tax profit fell by almost 15 per cent, to $1.9 billion.
After accounting for taxation, BNSJ's net profit fell to $1.4
billion, a decline of almost 16 per cent. While its profits have declined, the bank continues to be magnanimous to its shareholders, increasing the amount paid in dividends. By increasing its interim dividend to 50 cents per stock unit up from the forty cents paid in the corresponding period last year Scotiabank
continues to maintain its reputation as a high dividend-paying stock. That should continue to make it appealing to its shareholders and prospective investors. At Friday's annual general meeting, share-holders approved a resolution for a one-for-one bonus issue to stockholders on record as at March 10 this year.
TOTAL ASSETS
The bank's total assets at the end of the first quarter were $172 billion, a 12 per cent increase over the previous year. Deposits grew by 13 per cent, moving to $105 billion.
Scotiabank Jamaica Limited holds the enviable distinction of being the country's largest and most profitable bank. Having escaped unscathed from the financial crisis which bedevilled the financial sector in the mid 1990s, it cemented itself as an institution in Jamaica. In fact, the minister of finance, Dr. Omar Davies, has singled out the
institution and its management practices as proof that banks, when they stick to their core business and are managed
properly, can survive turbulent times.
