Home' Trinidad and Tobago Guardian : November 30th 2014 Contents For almost six years there has
been regular speculation con-
cerning the possibility of a
change in the majority own-
ership of Republic Bank Ltd,
which was previously held by
CL Financial and Clico-related entities.
In 2012, slightly more than 40 million
shares, which represented 25 per cent of the
outstanding shares, previously held by Clico,
were transferred to a trust, Clico Investment
Trust. (Many would agree that this was an
unimaginative choice of name.)
The beneficiaries of this trust were the for-
mer Clico EFPA policyholders; when the trust
terminates, those beneficiaries would then
acquire direct ownership in RBL via the con-
version of their trust units to RBL shares.
They would also receive cash from the bond
element of the trust.
In what appears to be the final phase of
this exercise, the Minister of Finance---in an
interview with Anthony Wilson, published
on November 20, 2014---has suggested that
the remaining shares held by CL/Clico-related
entities could be sold to several local insti-
If sanctioned by Cabinet, this exercise could
be completed early in the new year. These
share sales would provide funds to help with
the final resolution of the difficult CL/Clico
matter, while allowing RBL to remain almost
entirely locally- owned. It would be interesting
to see at what price(s) these sales are execut-
ed.Now, let us turn to RBL s results for the
year to September 2014.
Changes in financial position
Total assets rose from the restated $57.6
billion as at September 2013 to $59.4 billion
on September 30, 2014, reflecting an increase
of 3.1 per cent.
The major component, loans and advances,
rose by 7.4 per cent to $27.1 billion from 2013 s
$25.2 billion. The biggest improvement was
registered in T&T, where balances increased
by 10 per cent to $19.33 billion from the pre-
vious level of $17.57 billion.
Barbados loan balances improved from
2013 s $4.54 billion to $4.58 billion, reflecting
a change of only 0.9 per cent. This is con-
sistent with economic conditions in that coun-
try.Loan balances located in Cayman, Guyana
and the Eastern Caribbean closed at $3.18
billion; this reflected a 1.8 per cent improve-
ment over the 2013 level of $3.12 billion. Eco-
nomic growth in Guyana has slowed from 5.2
per cent in 2013 to an estimated 3.3 per cent
in 2014. This factor, together with difficult
conditions in Grenada and less vibrant activity
in The Caymans contributed to the slower
growth in loans.
In terms of segment improvements, mort-
gage balances increased by 12.1 per cent to
$10.7 billion from $9.56 billion in 2013. Sim-
ilarly, retail lending rose by 11.5 per cent to
$5.2 billion from last year s level of $4.66 bil-
lion. Meanwhile, loans to the commercial and
corporate sector increased to $11.17 billion
from $11.01 billion, reflecting a modest 1.5
per cent change.
Amounts due from banks fell to $8.35 billion
from the previous level of $9.24 billion. Par-
ticularly in Guyana, RBL used excess cash to
fund its expansion.
The goodwill balance declined by $185 mil-
lion, which reflected the reduction of the car-
rying value of its Barbados subsidiary. This
mirrors the challenging economic conditions
in that jurisdiction.
On the liability side, customers deposits
increased to $43.77 billion from 2013 s $42.1
billion, or by almost 4 per cent. The largest
component is sourced from individuals; this
increased by more than $1 billion to $24.56
Total equity rose to $8.75 billion from the
previous level of $8.52 billion. The major pos-
itive change was comprehensive income of
$895 million while dividends paid of $685
million lowered the net result.
Income and profits
Net interest income rose by 1.7 per cent to
$2.22 billion from last year s $2.18 billion. This
is a reasonable change given the high levels
of liquidity and keen competition.
On the other hand, other income rose by
a robust 18.3 per cent to $1.49 billion from
$1.26 billion. Almost all components of this
segment exhibited lower income levels. The
increase was primarily triggered by the explo-
sion in gains on the disposal of "available for
sale" investments; this component increased
from less than $26 million in 2013 to $342.7
million this year.
One might marvel at the convenience of
these transactions as they, almost single-
handedly, allowed RBL to record higher total
income of $3.71 billion; this is 7.8 per cent
greater than the $3.44 billion shown for the
Operating expenses increased from $1.71
billion in 2013 to $2.06 billion this year. Modest
declines were recorded in both depreciation
and advertising and public relations headings,
while all other components rose. Notably,
there was a one-off charge of $185 million,
which represented the goodwill expense for
the Barbados operations. Pension costs also
increased by $27.2 million over the previous
year s $38.3 million.
The share of net results from associated
companies swung by $109.5 million as this
component moved from a loss of $60.3 million
in 2013 to a current year profit of $49.1 mil-
The 2014 result was boosted by the profit
of $43.3 million from the group s 40 per cent
ownership in HFC Bank Ghana (In a previous
article, I estimated $32.2 million). Its holdings
in G4S Holdings and InfoLink Services Ltd
generated $6.45 million in profit, while East
Caribbean Financial Holdings Ltd reported a
loss of $0.602 million.
These changes boosted operating profit to
$1.69 billion, which was marginally greater
than the $1.67 billion earned in 2013.
Investment impairment expense declined
to $4.1 million from last year s $53 million.
On the other hand, loan impairment
expenses, net of recoveries, increased to $119.9
million from the prior year s level of $57 mil-
lion. $71.1 million of the 2014 figure was
related to commercial and corporate cus-
tomers; this compares with a modest $19.4
million for the same customer base in 2013.
Net profit before taxation registered at $1.57
billion compared with $1.55 billion in 2013.
Fortunately, tax expenses declined by $38 mil-
lion to $339 million.
Higher levels of tax-exempt income ($82.1
million), mostly in the form of profits on the
sales of investments, combined with lower
levels of non-deductible expenses helped pro-
duce this favourable decline.
Consequently, RBL was able to report a
higher net profit for 2014 of $1.23 billion. This
was 4.4 per cent greater than the $1.18 billion
recorded for 2013.
Of this sum, $1.19 billion related to equi-
ty-holders of the parent, leaving $0.04 billion
to non-controlling interests. These results
translated into a diluted EPS of $7.39
RBL divides its business into two classes,
retail and commercial banking and investment
banking. It is interesting to note that, when
presented like this, both classes exhibit lower
operating and pre-tax profit for 2014, when
compared with the 2013 results.
So, one may well ask, where did the "higher
levels of profit" originate? The strange answer
is that we need to look closely at the "elim-
inations" columns, which provides the key to
In the other income line, we see a negative
$144 million for 2014 and negative $497 million
for 2013. Presumably, this means income, such
as fees, generated between fellow subsidiaries.
(It would be very useful to have a complete
explanation for these high elimination fig-
Similarly, there are positive figures of $11
million and $19 million respectively in the
2014 and 2013 expenses line. Once again, it
is quite likely that these relate to intercompany
In effect, RBL reported a higher profit in
2014 due largely to a lower level of intercom-
pany transactions. How does that sound?
Perhaps, we can make a case for losing the
"eliminations" column. This might achieve
greater clarity and help readers to make better
comparisons. Of course, a meaningful sub-
dividing of either or both columns, accom-
panied by appropriate commentary, would
also contribute to investors understanding of
the bank s operations.
Dividends, share price and future
Dividends have remained at $4.25 for the
past three years. At the current price of $119.97,
the yield is 3.54 per cent.
When full ownership of HFC Bank Ghana
is eventually achieved, this could add about
$100 million to the bottom line. However,
much of that profit is likely to be needed to
fund further expansion into other selected
Even if we assume some improvement in
the local profit picture (despite the problem
of lower energy prices), RBL s operations in
many other jurisdictions face a variety of chal-
lenges, which could restrain significant total
Perhaps, only when the broader Caribbean
region returns to more "normal" growth,
should we expect to see meaningful gains in
both profits and dividends at RBL.
NOVEMBER 30 • 2014 www.guardian.co.tt SUNDAY BUSINESS GUARDIAN
STOCKS | SBG11
Republic Bank Ltd 2014 results:
Has it failed to ignite?
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