The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Scotiabank (Bahamas) yesterday said it had “exceeded expectations” with the almost-20 per cent year-over-year net income increase it enjoyed in 2013, with the improvement largely driven by “stabilisation” in its non-performing loan portfolio.

Senior executives, responding to a series of e-mailed Tribune Business questions, acknowledged that the $7 million bottom line improvement, from $35.222 million to $42.26 million, had been driven by reduced loan loss provisions of the same amount.

“Scotiabank’s 2013 financial performance exceeded internal expectations due to the stabilisation of non-performing loans during the year, and the corresponding improvement in loan loss provisions,” the bank said

“While this trend does seem promising, we are being cautiously optimistic and have been closely monitoring the 2014 year-to-date delinquency trends and performance of our loan portfolio.”

Scotiabank (Bahamas) told Tribune Business that as at October 31, 2013, non-accrual loans made up “approximately 20 per cent of our gross loan portfolio”.

That is above the 15.83 per cent average for the Bahamian commercial banking industry, and indicates that out of a $1.389 billion outstanding loan portfolio, some $277.8 million is non-performing.

The bank, though, effectively ‘dead batted’ a question that many Bahamians are likely to ask, namely why - with a profit increase to $42.26 million, and $33.049 million in dividends paid out to its regional and Canadian parents - it is seeking to outsource various back office functions to Trinidad, a may that may result in forced redundancies here.

Asked to justify this move, by Tribune Business, Scotiabank (Bahamas) replied: “As indicated previously, Scotiabank is focused on continuously enhancing the efficiency and effectiveness of its operations, and this centralisation of certain operational functions is a part of that ongoing enhancement.

“Like any business, the bank has a responsibility to regularly review its operations to ensure ongoing competitiveness and viability.”

CIBC FirstCaribbean has already announced that 66 posts in the Bahamas will be made redundant as back office functions are outsourced to Jamaica, and all three Canadian-owned banks are looking to cut costs and boost profits in response to non-performing loan difficulties they have encountered throughout the Caribbean.

Another factor behind their tendency to outsource from the Bahamas could be this nation’s high operating costs, and the increased tax burden the Government is placing on the commercial banking industry.

Scotiabank (Bahamas) hinted at this to Tribune Business, saying: “The bank has performed on target for the first four months of this fiscal year [to end-February].

“However, with the impact of the newly introduced 3 per cent tax on gross revenue and the uncertainty of the timing of VAT, which is expected to have a significant impact on our profitability, it is too early to determine if the bank’s 2014 performance will be better than 2013.”

Elsewhere, Scotiabank (Bahamas) said the 6.5 per cent, or $100 million, contraction year-over-year in its outstanding loan book was driven by write-offs and repayments outpacing new loans.

The credit portfolio shrank from $1.486 billion to $1.389 billion in the 12 months to end-October 2013, although loan loss impairments shrank 20.2 per cent - from $35.309 million in 2012 to $28.181 million in 2013.

“Loans and advances to customers shrank by $97 million or 7 per cent over 2012 levels due to new loan originations being outpaced by impairments, write-offs and regular customer repayments,” Scotiabank (Bahamas) confirmed.

“Given the current economic environment and the historical delinquency, in 2013 the bank adjusted its policies, adopting a more prudent view towards lending.

“Our focus therefore has been two-fold, meeting the financial needs of those qualified customers while simultaneously building lasting relationships with all customers, giving practical advice and solutions to help them reach their future financial goals.

“We are pleased to have met our lending targets for 2013, are on target for 2014 year-to-date.”

Customer deposits on Scotiabank (Bahamas) balance sheet have decreased by around $50 million in both of its 2012 and 2013 financial years.

When asked about this by Tribune Business, the bank said: “While deposits from customers grew moderately over 2012 amounts ($29 million or 3 per cent), deposits from banks and other affiliates contracted by $83 million or 11 per cent, representing normal fluctuations in these account types, resulting in a net decline of total deposits of $54 million, or 3 per cent.

Scotiabank (Bahamas) also said the jump in Treasury Bill holdings in its year-end balance sheet, from $97.9 million to $155 million, had been generated from “more successful bids during 2013, as opposed to 2012”.