Shane Ingram, Contributor
William Clarke (left), managing director ScotiaBank Jamaica shares a laugh with Pablo Breard, Scotiabank Toronto head of research, at the Scotiabank Jamaica annual economic seminar held at the Knutsford Court Hotel in April. - RICARDO MAKYN/STAFF PHOTOGRAPHER
THOUGH STILL cautious, investors have shown willingness to take advantage of the prolonged fall in stock prices during the past couple of weeks. Investor confidence seems buoyed by the prospects of an excellent winter tourism season with bookings already well above normal. With the promise of additional foreign exchange inflows through the usually expected strong remittances at this time of year, the short-term outlook seems favourable.
BANK OF NOVA SCOTIA JAMAICA LTD. CONTINUES TO DEFY THE ODDS
Against the backdrop of a declining interest rate environment, the Bank of Nova Scotia Jamaica Limited (BNSJ) reported net profits of $5.88 billion for the year ended October 31, 2005. These results were on par with last year as profits were a mere 0.5 per cent more than that earned at the end of 2004. Profits were achieved on net revenue of $17.53 billion, an increase of 4.91 per cent over that of 2004. Consistent with reduced market rates, BNSJ experienced a marginal 0.33 per cent fall-off in net interest income over 2004, thereby making it relatively flat at $14.06 billion. Fortunately, however, net revenue was buoyed by a 33 per cent growth in other revenue sources through the channels of foreign exchange trading and retail fee income. Year-over-year comparison revealed that other revenue increased by 33.5 per cent to reach $3.46 billion for the year. While the Bank remained committed to maintaining costs across the Group, there was a 5.2 per cent increase in non-interest expense primarily due to increased staff-related costs. Though this brought about an increase in the productivity ratio from 51.08 per cent to 52.47 per cent, it did not serve to exceed the international benchmark ceiling of 60 per cent.
Over the years, BNSJ has held an iconic domestic presence due its proven track record of stability. This characteristic has given rise to an annual average increase in deposits of 13 per cent for the past four years, which has increased the Bank's capacity to invest in earning assets. For 2005, the bank's deposit growth rate remained fairly consistent at 10 per cent - a testament of the continued confidence of the Scotiabank depositors. The Bank also has a thriving life insurance business with which it continues to extract additional value from its customer base. Through its insurance arm, ScotiaMint was able to garner $4 billion in gross premium income.
BNSJ has maintained an annual average payout ratio of 46.5 per cent over the past four years. For the past year, management appeared committed to maintaining investor support through high dividends. This was highlighted by a final dividend payment of $0.25 on November 24 which brought the total annual dividend payment to $1.00 compared to $0.925 paid last year.
BNSJ's earnings for this year were expectedly stalled by the declining interest rate environment. The Bank will most likely continue to focus on its strategy of improving its other revenue streams, while applying strong risk management and expense control. Projecting that earning assets will move in line with the average growth rate of deposits and that the bank will seek to bolster its loan portfolio as returns from securities decline with market rates, then BNSJ should witness some growth in net interest income in the upcoming quarters. BNSJ should, therefore, be consistent in its net revenue growth over the next year. Coupled with such a generous dividend policy this stock is certainly one which investors should retain in their portfolios for the long-term.
RECOMMENDATIONS
Investors are encouraged to remember that stocks are long-term investment options. Among the better long-term options currently available are BNS, JPG, CWJA, PJAM, Carreras, NCBJ, and RJR. Short term gains could surface from JBG, CRTS, Seprod, D&G, and Goodyear. Please contact DB&G's Stockbrokerage department at 1-888-CALL DBG for further information on these and other stocks or visit for detailed analyses.
Disclaimer: All information contained in this article has been obtained from sources that DB&G believes to be accurate and reliable. All opinions and estimates constitute the Author's judgment as of the date of the article. No warranty as to the accuracy, timeliness or completeness of this article and as to the opinions based thereon is given or made by DB&G. DB&G and/or its employees or directors and/or any associated person may have an interest in, or interest in the acquisition or disposal of, the securities or class of securities mentioned herein. Call 1-888- CALL DBG if in doubt about the content of this article. Decisions based on information contained in this article are your sole responsibility.
