- Earnings: Earnings Per Share 50.0% higher, from TT$0.19 to TT$0.28
- Performance Drivers:
- Increased Revenue
- Interest Rate Normalization
- Rating: Maintained as OVERWEIGHT
- Earnings: Earnings Per Share 2.0% higher, from $1.05 to $1.07
- Performance Drivers:
- Higher Revenues
- Increased Operational Efficiency
- Economic Uncertainty
- Rating: Assigned as MARKETWEIGHT.
This week, we at Bourse review the performance of two Canadian-owned, locally-listed banks, FirstCaribbean International Bank Limited (FCI) and Scotiabank Trinidad and Tobago Limited (SBTT) for their first fiscal quarter ended January 31st, 2023. Both banks would have reported improved earnings, benefitting from increased revenues. Could both entities continue this momentum, despite the still uncertain operating environment? We discuss below.
FirstCaribbean International Bank Limited (FCI)
FirstCaribbean International Bank Limited (FCI) reported Earnings Per Share of TT$0.28 for the three-month period ended January 31st 2023(Q12023), 50.0% higher compared to TT$0.19 recorded in Q12022.
Total Revenue increased 27.7%, from TT$948.9M in Q12022 to TT$1.2B in Q12023.Operating Expenses climbed 8.1% to stand at TT$705.5M which – according to FCI- was primarily due to spending on strategic initiatives, employee-related costs, and the effects of inflation. FCI reported a Credit Loss Expense on Financial Assets in the amount of TT$6.9M in Q12023 versus a reversal of TT$48.8M in the prior period. Income Before Tax (PBT) stood at TT$499.6M, 44.7% higher than TT$345.3M in Q12022. Resultantly, FCI reported an Income Tax Expense of TT$32.6M (22.6% higher). Overall, the Group reported Net Income Attributable to Equity Holders of TT$443.7M, up 49.6% from a prior TT$296.6M.
Higher revenues reflect rate environment
FCI’s Total Revenue advanced 27.7% to TT$1.2B in Q12023. Net Interest Income, the Group’s largest revenue contributor (Q12023: 70.7%) expanded 41.6% TT$857M, supported by higher US interest rates in its US dollar denominated businesses (Bahamas, Cayman Islands) and growth in its loan portfolio. The Group’s loan portfolio increased 6.4% YoY to TT$44.2B in Q12023, reflecting increased economic activity in the period. Operating Income, which includes net fees and commission income, accounted for 29.3% of Total Revenue and increased 3.3% to TT$355M.
FCI’s PBT expanded 30.3% to TT$468M in Q12023 from TT$359M in Q12022, with growth reported across all segments.
FCI’s Corporate and Investment Banking (CIB) segment accounted for 87.3% of PBT and reported a Profit Before Tax of TT$408M, 20.7% higher YoY, owing to a reversal of Credit Loss Expense on Financial Assets of TT$33.5M in the period. Retail, Business and International Banking (RBB) recorded a Profit Before Tax of TT$41M in Q12023 advancing 200.7% compared to TT$14M in the prior comparable period likely due to increase in card spending. Wealth Management recorded an increase in PBT from TT$7M to TT$19M, up 160.8% in Q12023, as segmental revenue grew 25.6%, attributable to financial markets faring slightly better during the period.
The Bourse View
FCI trades at a current price of TT$7.15, up 31.2% year-to-date. The stock trades at a trailing 12-month P/E ratio of 8.7 times, significantly below the Banking sector’s average of 13.8 times. The stock also offers investors a Trailing Dividend Yield of 4.0%, above the sector average of 3.0%. The Group declared an interim dividend payment of TT$0.083 (US$0.0125) per share to be paid on April 21st, 2023.
FCI has benefitted from the recovery in economic activity in recent months, reflected by higher revenues. According to the Group, the Bank continues to make steady progress in executing its client-focused strategy with its digital transformation initiatives. However, lingering inflationary pressures may continue to weigh on consumer habits in the near to medium term. On the basis of improved performance, relatively attractive valuations and US dollar 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 $1.07 for the three-month period ended January 31st, 2023 (Q12023), a 2.0% increase compared to $1.05 in the prior comparable period.
Net Interest Income rose 13.6% to $340.4M, while Other Income fell 10.2% from $175.3M in Q12022 to $157.4M in Q12023. Total Revenue for Q12023 came in at $497.8M, a 4.8% increase from the prior period. Non-Interest Expenses shifted 8.2% higher from $173.5M in Q12022 to $187.7M in Q12023, as a result of higher activity costs arising from improved business momentum year over year. SBTT recorded a 33.2% expansion in Net Impairment Loss on Financial Assets, amounted to $22.9M (Q12022: $17.2M). Income before Taxation (PBT) stood at $287.2M, marginally higher relative to $284.2M recorded in Q12022. The Taxation expense rate moved from 34.8% to 34.1% in the period under review. Overall, SBTT reported a Profit for the Period of $189.3M, up 2.0% compared to $185.5M in Q12022.
SBTT’s Total Revenue ($498M for the period ended 31st January, 2023) recorded an increase of $22.9M or 4.8%. This was attributable to growth in Net Interest Income (68.4% of Total Revenue), which rose by $41.4M to $340M in Q12023. According to the Group, this increase was driven by higher loan volumes to retail and commercial customers combined with greater yields on the Group’s investment portfolio. Other Income (31.6% of Total Revenue) recorded a decrease from $175M to $157M in the current period under review.
Growth occurred in all segments as a result of the continued economic recovery occurring in the local economy. The Bank’s largest operational segment by revenue, Retail Corporate & Commercial Banking (90.8% of Total Revenue) expanded 5.1% year-on-year. The Asset management segment experienced a 11.0% increase from the prior comparable period. Its Insurance Services segment displayed marginal growth of 1.0%.
Loans, Impairment Expenses increase.
SBTT recorded a 9.9% increase in its Total Loan Portfolio from $17.1B in 3M 2022 to $18.8B in Q12023, as continued recovery in economic activity stabilized loan demand.
Loans to Customers (94.8% of Total Loans), the Bank’s largest interest earnings asset, increased 9.9% driven by increased demand following competitive offerings made to both retail and commercial segments and enhanced digital customer engagement initiatives. Loans and advances to banks and related companies advanced 34.9%.
Net Impairment losses on financial assets increased to $22.9M from $17.2M in the prior period, resulting in an increase in the ratio of Net Impairment Losses to Total Loans to 0.23% from 0.17% in Q1022. The Group’s credit quality has improved, with the ratio of non-performing loans as a percentage of gross loans, reducing from 1.90% as at 31 January 2022 to 1.84% as at 31 January 2023.
The Bourse View
SBTT is currently priced at $78.30 and trades at a Trailing Price to Earnings ratio of 20.1 times, above the Banking Sector average of 13.8 times. The stock offers investors a Trailing Dividend Yield of 4.3%, above the sector average of 3.0%. SBTT’s dividend yields continue to remain healthy, reaffirming its commitment to return value to shareholders in the form of dividend payments. On the basis of improved performance and consistent dividend payments, but tempered by elevated sector valuations, Bourse maintains a MARKETWEIGHT rating on SBTT.
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