HIGHLIGHTS
FCI 9M2023
- Earnings: Earnings Per Share 73.1% higher, from TT$0.52 to TT$0.90
- Performance Drivers:
- Higher Revenues
- Higher Interest Rates
- Outlook:
- Interest Rate Normalization
- Continued Economic Recovery
- Rating: Maintained at OVERWEIGHT
SBTT 9M2023
- Earnings: Earnings Per Share 3.7% lower, from $2.96 to $2.85
- Performance Drivers:
- Increased Net Interest Income
- Higher Operating Expenses
- Outlook:
- Economic Normalization
- Rating: Maintained at MARKETWEIGHT
This week, we at Bourse review the performance of two locally listed banks, FirstCaribbean International Bank Limited (FCI) and Scotiabank Trinidad and Tobago Limited (SBTT) for their respective nine-month reporting periods ending July 31st, 2023 (9M 2023). SBTT’s increased revenue was offset by lower non-interest Income and higher Non-Interest Expenses. FCI, meanwhile, posted solid revenue growth buoyed by higher interest rates and increased consumer demand. What can investors expect from both Canadian-controlled banks in the months ahead? We discuss below.
FirstCaribbean International Bank Limited (FCI)
For the nine months ended July 31, 2023 (9M 2023), FirstCaribbean International Bank Limited (FCI) reported an Earnings Per Share (EPS) of TT$0.90, 73.1% above the previous comparable period.
Total Revenue grew to TT$3.7B (9M 2023), up 28.6%, from the previous TT$2.9B (9M 2022). Operating Expenses expanded 8.2% to TT$2.1B, resulting in 16% improved performance of Total Net Revenue to TT$2.2B. When compared to the previous reporting period, Credit loss expense on financial assets swung from a credit of TT$46.4M to an expense of TT$102.3M. Income Before Tax (PBT) amounted to TT$1.52B, 52.2% higher than the prior period. FCI reported a drop in Income Tax Expense to TT$100.8M, 28% lower year-on-year, which led to a decline in the Group’s effective tax rate from 14% to 6.7%. Net Income Attributable to Equity Holders of TT$1.42B relative to TT$821M in the prior period, representing a 73.4% increase to shareholders.
Revenue Higher
Notably, Total Revenue continued to trend upwards, with its growth rate accelerating from 8% (9M2022) to 28.6% Year on Year (YOY). Net Interest Income, the Group’s main source of income (71.7%), increased 41.3% to TT$2.7B. This performance was, according to FCI, primarily attributed to higher US benchmark interest rates, which improved results in its Bahamas and Cayman Islands businesses. The Group’s loan portfolio also grew a modest 2.0% from TT$44.1B in 9M 2022 to TT$44.8B in 9M 2023. Operating Income – accounting for 28.3% of Total Revenue- advanced 28.6%, owing to higher transaction volumes. With higher benchmark USD rates being the driver of improved revenue performance, investor will be cognizant of the prevailing US interest rate cycle as it approaches an inevitable peak. While higher USD rates currently persist, any corrections to benchmark rates could potentially weigh on Interest Income.
Operating Segments Improve
FCI’s Profit Before Tax (PBT) grew to TT$1.52B, improving 52.2% year on year. The Bank’s largest contributor to PBT growth, Corporate and Investment Banking (83.4% of PBT), advanced 38.0% from TT$916M to TT$1.3B. Retail, Business, and International Banking (RBB) contributed 6.0% to PBT, producing a 16.1% improvement year on year from TT$79M relative to TT$91M. The Wealth Management segment (4.4% of PBT) expanded from TT$45M relative to TT$67M, representing growth of almost 50% (49.4%) in the current period.
The Bourse View
FCI currently trades at a price of $7.00 at a trailing PE ratio of 6.4 times, below the Banking Sector average of 12.3 times. The stock offers investors a trailing dividend yield of 4.6%, above the sector average of 3.2%. The Group announced an interim dividend of US$0.0125 per share payable to shareholders on October 13, 2023. Recently, the Group announced the final sale of Grenada’s banking assets to Grenada Co-operative Bank Limited on July 14, 2023, which officially brought its Eastern Caribbean divestiture initiative to a close.
FCI’s profitability should remain relatively resilient in the prevailing interest rate environment, benefitting from near-peak USD rates. The impact of persistent inflation could, however, weigh on consumer demand in the near-term. On the basis of relatively attractive P/E multiples and USD dividends, Bourse maintains an OVERWEIGHT rating on FCI.
Scotiabank Trinidad and Tobago Limited (SBTT)
Scotiabank Trinidad and Tobago Limited (SBTT) reported Earnings per Share (EPS) of $2.85 for the nine-month period ended July 2023 (9M2023), down 3.7% compared to $2.96 in the prior comparable period.
Net Interest Income advanced 15.8% to $1.1B, while Other Income contracted 24.0% from $522.4M to $397.1B in 9M2023. Total Revenue for 9M2023 stood at $1.46B, increasing marginally 1.3% year-on-year. Non-Interest Expenses rose 9.5% or by $52.4M from $550.8M in 9M2022 to $603.2M in 9M2023, reflective of a combination of inflationary impacts on SBTT’s cost structure, higher activity related costs and increased technological costs. As a result, its operating efficiency ratio (expenses relative to revenue generation) increased from 38.4% to 41.5% in the current period but remains the lowest within the local banking sector. SBTT recorded a marginal decline of 0.4% on Net Impairment Loss on Financial Assets, amounting to $84.4M relative to 9M2022 of $84.7M. Income before Taxation moved from a previous $800.1M to 767.5M, declining 4.1% year-on-year. Income Tax Expense fell to $265.6M in 9M2023, an effective tax rate of 34.6%. Overall, SBTT reported a Profit for the Period of $501.9M, 3.7% lower than the $521.1M in 9M2022.
Marginal Revenue Growth
SBTT’s Total Revenue recorded an increase of $19.4M or 1.3% amounting to $1.46B. Within Total Revenue and its components, however, there was significant disparity in growth. Net Interest Income, the Group’s largest revenue contributor (9M2023: 72.7%) advanced 15.5% from $916M in 9M2022 to $1.06B in 9M2023. According to SBTT, this was mainly driven by growth in loans to retail and corporate/commercial customers, combined with improved yields on the Group’s investment portfolio. Meanwhile, Other Income (27.3% of Total Revenue) decreased by $125.3M to $397.1M relative to 9M2022 ($522.4M), primarily due to lower trading revenues, aligned with prevailing weak market sentiment.
The Bank’s largest operational segment by revenue, Retail Corporate & Commercial Banking (90.4% of Total Revenue) and its Asset management segment expanded 1.4% and 11.3% respectively, year-on-year whilst its Insurance Services segment fell 0.3%.
Loans Increase, Impairment Expenses Fall
SBTT recorded a 7.5% increase in its Total Loan Portfolio from $17.9B in 9M2022 to $19.3B in 9M2023, as continued recovery in economic activity supported loan demand. Loans to Customers (95.6% of Total Loans), the Bank’s largest interest-earning asset, increase of 8.4% to $19.4B, reflecting growth in all segments indicative of SBTT’s continued focus on meeting customer’s lending needs. This was offset by a fall in Loans and advances to banks and related companies of 8.7% year-on-year to $855M. Net Impairment losses on financial assets were recorded at $84.4M for the current period under review, down 0.4% resulting in a decline in the ratio of Net Impairment Losses to Total Loans to 0.44% in 9M2023 from 0.47% in 9M2022, signalling an improvement in perceived quality and improving delinquency in its loan portfolio.
The Bourse View
SBTT is currently priced at $72.00 and trades at a Trailing Price to Earnings ratio of 19.1 times, above the Banking Sector average of 12.3 times. The stock offers investors a trailing dividend yield of 4.3%, above the sector average of 3.2%. The Group declared an interim dividend payment of $0.70 per share to be paid on October 9th, 2023. SBTT’s commitment to robust dividend payments, reflected in its dividend pay-out ratio of 74% in 9M2023, remains an appealing value proposition for stock ownership. On the basis of increased revenues, tempered by elevated valuations and higher non-interest expenses, Bourse maintains a MARKETWEIGHT rating on SBTT.
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