Bad loans declines by 1% to 1.7% of total gross loans                                                    

Durrant Pate/Contributor 

Scotiabank Jamaica has improved its credit quality and is proclaiming that the quality of its loans remain very strong and is below industry average.

Credit quality is an imperative in the banking sector, particularly during swing periods such as the one Jamaica is currently in whereby interests are rising, resulting in loans going bad as borrowers are unable to cope with higher repayment rates. Credit quality is measured by the level of a bank’s Non-Accrual Loans (NAL), which is an accounting term in the lending industry for an unsecured loan that is no longer generating its stated interest rate because no payment has been made by the borrower for 90 days or more.

Scotiabank Jamaica, boasting that it has managed to slash by almost 40 per cent its NAL, which is also referred to as bad loans. In fact, the banking group’s NAL, as at July 2022 totaled J$3.7 billion compared to $6.1 billion as at July 2021. 

This represents a reduction of J$2.4 billion or 38.9 per cent. Scotiabank Jamaica’s NALs currently represents 1.7 per cent of gross loans when compared to July 2021 (2.7%) and 0.6 per cent of total assets (July 2021 – 1.1%). 

Credit quality better than industry average                          

Of note is the fact that the banking Group’s NALs as a percentage of gross loans continue to be below the industry average. However, its accumulated credit loss provisions (ACLs) for loans as at July 2022 was J$5.2 billion, representing 140.6 per cent coverage of total non-performing loans. This means that Scotiabank Jamaica’s loan portfolio has more than adequate insurance coverage, ensuring adequate coverage for possible future non-performing loans. However, there has been a more than moderate rise in its expected credit losses for the July 2022 third quarter.

The banks expected credit losses for the quarter showed an increase of J$187.8 million or 9.4 per cent when compared to third quater of 2021. 

However, Chief Financial Officer Michelle Wright hinted to Our Today that this increase is not a bother, as it has more to do with the bank’s conservative posture of making provisions to cover anticipated losses, which might not even occur. 

She explained that the increase is also as a result of IFRS standards, which has a more futuristic outlook for the business and making provisions as such.