Ashford W Meikle, Business Reporter

WITH ITS performance dragged down by rising operating expenses and single digit growth in its total interest income, the Bank of Nova Scotia (BNS) made marginal gains in earnings for the six months ending April 30, 2007.

Compared to the similar period last year, Scotia's net profit increased by just under three per cent, or $94 million more, to $3.4 billion. Interest income from securities and loans and deposits with the bank saw a seven per cent increase, to $11.8 billion.

At the same time, the growth in expenses outstripped earnings, rising by 10 per cent to $5.4 billion.

Flat results

"I am disappointed in Scotia's (earnings). I thought they would have done better, but the results are flat, and they are going nowhere too fast," economist John Jackson said Tuesday in his assessment of the bank's performance.

"They need to grow the loans by 10-15 per cent per annum to have double digit growth in net profit."

Scotiabank has a loan portfolio of almost $65 billion - a seven per cent year-over-year increase. In fact, among the commercial banks,Scotia controls almost 40 per cent of the $150 billion debt stock captured by the Bank of Jamaica (BoJ). But Jackson says that the bank needs to be much more aggressive in marketing loans.

"You can't look at BoJ's figures (in isolation); you have to look at what the market is. The potential out there in the market is, in my view, a large one. What has been happening is that they have been focusing on consumer loans but where I think they need to concentrate on is the medium and smaller sized companies because until interest rates come down the bigger companies are not going to be borrowing at 19 per cent."

Jackson, who is also publisher of Investor's Choice magazine, said that it is not surprising that BNS's income from securities registered single digit growth.

"When interest rates fall they are making less money on their own money because they have a large capital base."

Analyst Mark Croskery of the brokerage house, Stocks and Securities was more tempered in his assessment.

"Yes, the results are a bit disappointing, in terms of the earnings growth, but one must put the results into context in terms of what is happening with Scotia Group Jamaica."

Croskery, who rates BNS a 'buy' at $21.85 to $22, noted that the bank's performance was affected by its recent acquisition of Dehring Bunting & Golding.

"The market and investors need to understand that there were also associated costs and anomalies as with any new acquisition, (such) as one-off fees acquisition," said the analyst, "and so core earnings would have been affected given this expenditure in the six months results."

ashford.meikle@gleanerjm.com