( L - R ) INGRAM AND CLARKE
ALL THREE indices closed higher at the end of trading last Friday, making it the first weekly gain since the start of 2006. This came against news of S&P's 'B' rating on Jamaica's long- and short-term sovereign debt, 0.1% inflation in December and a healthy stock of NIR at year-end. However, the expectations of increased interest in equities this week were not fulfilled as investors remained on the sidelines.
COMPANY SPOTLIGHT: BNSJ MARGINALLY AHEAD AT YEAR-END 2005
The Bank of Nova Scotia Jamaica Limited reported net profit of $5.88 billion for the year ended October 31, 2005. Annual earnings were achieved on net revenue of $17.53 billion, an increase of 4.91 per cent over that of 2004. Though total earning assets grew 9.7 per cent in the year, net interest income slipped 0.33 per cent to $14.06 consequent to the respective declines of 7.6 per cent and 1.6 per cent in interest income from loans and securities. However, BNS peeled 13.1 per cent from interest expense which allowed net interest margin to end the year at a very healthy rate of 80.24 per cent.
Net revenue remained buoyant, however, as it was bolstered by non-interest income that climbed 33.5 per cent in the year to reach $3.46 billion. In particular, fee and commission income lifted $ 601 million to $2.33 billion, while foreign exchange trading yielded net gains of $794 million - or $208 million more than the prior year. Insurance premium income also rallied an increase of 21.9 per cent to $334 million. Simultaneously, BNSJ tamed its efficiency ratio at 50.9 per cent having held growth in non-interest expense to 5.2 per cent for the year. Based on such changes, pre-tax profit was in the region of $8.33 billion or 1.92 per cent more than that earned in 2005. Unlike 2004 when corporate banking provided the bulk of pre-tax profits (39 per cent), the treasury unit accounted for the lion's share of pre-tax profits in 2005 (30 per cent) having grown 137 per cent relative to retail banking that contracted 30 per cent.
Year-over-year comparison showed asset base expansion of 9.09 per cent or $15.3 billion. Growth was evident across all asset classes: Investment Securities and Loans increased by $4.6 billion and $4.2 billion respectively, while Government Securities under repurchase agreement increased by $2.18 billion to $27.23 billion. Loan growth was primarily driven by retail lending rather than commercial credit lines. BNSJ also focused on improving the quality of its loan portfolio as non-performing loans represented 1.59 per cent of total loans as opposed to 1.93 per cent in 2004. Asset growth was largely funded by deposits (both public and other) that shifted up 9.5 per cent to $113.55 billion at the close of business in October.
LIABILITIES
Consequently, total liabilities increased 8.4 per cent to $159.9 billion. In addition, shareholders' equity rose by 14.2 per cent to $23.5 billion. The overall movements in both asset and equity base translated into respective returns on average assets and equity of 3.35 per cent and 26.68 per cent, down from 3.71 per cent and 30.6 per cent a year earlier.
BNSJ has managed to overcome a difficult economic climate to push profits marginally ahead of the previous year. However, it is worthy to note that profits actually grew 26.5 pe cent in the final quarter driven by the 14.8 per cent growth in net interest income combined with a 45 per cent upturn in non-interest income (attributable mainly to fees and foreign exchange gains). BNSJ's track record and strong brand image have fostered sustained confidence in this entity over the year, which has given rise to an annual average increase in deposits of 13 per cent over the past four years. This growing deposit rate has enhanced the Bank's capacity to improve income generating portfolio in future periods. The Bank also sets itself apart from its peers with consistently high levels of operating efficiency - a feature indicative of its unwavering focus on managing costs across the Group. Meanwhile, investors have been attracted to the entity's stable return on equity, strong dividend policy, and management's apparent commitment to maintaining the share price through high dividends or bonuses.
RECOMMENDATIONS
We hold favourable outlook for CWJA, NCBJ, PJAM, DB&G, and BNSJ. Seprod, D&G, CRTS, and Goodyear could also perform well over the short-term. 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 judgement 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.
