Scotia sets up $3b loan fund, cuts rates to drive business

SCOTIABANK JAMAICA has set up a $3 billion fund from which it will issue loans to small businesses at a special rate of 9.99 per cent.

The bank has also adjusted its loan rate for residential mortgages to 6.99 per cent, which it now touts as the lowest in the market, inclusive of the business done by commercial banks and building societies.

Those initiatives are being rolled out as the bank’s financial performance wanes.

Scotia Bank Group Limited made net profit of $2.3 billion for its January 2019 first quarter, compared to $3.4 billion in the comparative period in 2018. The latter period benefited from a oneoff gain of $753 million from the disposal of a subsidiary.

Jamaica’s No. 2 banking group also did poorly in the preceding October 2018 fourth quarter when its bottom line shrank to $1.6 billion. Comparatively, the October 2017 quarter also produced a profit of $3.4 billion.

Scotia Group Jamaica president and CEO David Noel acknowledged that the first-quarter earnings were down but said that the velocity of transactions is up.

“Our strategy is working, and we believe as we expand loans to the private sector, then you will see the impact on growth,” Noel said at the annual general meeting held last Friday in New Kingston.

“The number of loans out there is up, and also the number of customers we are serving, the number of insurance policies, the number of people in different mutual funds. I think the core business is performing better,” he said.

The bank’s loan portfolio grew at an annual rate of 11 per cent to $185 billion in the quarter, and a similar rate for deposits, which spiked to $303 billion. Its total assets now top $537 billion.

Scotia Group has five operating segments – treasury, retail, corporate commercial, investment management services and insurance – all of which recorded either lower or flat revenue for the January quarter while only its investment arm grew profits year on year.

The banking group would have made 18 per cent higher net profit for the quarter had it not taken a $854 million hit for expected credit losses arising from new accounting rules under IFRS 9.

The prevailing low interest rate environment also led to reduced gains of $2 billion for Scotia Group.

“So a low interest rate environment even though it is impacting our results, we believe it augurs well for the overall economy and our future. And over time, our loans will grow and so, too, our net interest income,” Noel said. steven.jackson@gleanerjm.com