GuyAm Bank reports 48% increase in profits
-focusing on investment management and capital market activities
Stabroek News
March 19, 2004
Taking advantage of a regional double taxation treaty and recovering economies within the Caribbean, Guyana Americas Merchant Bank last year notched up a 48% increase in profits.
Net profit after tax reached $17.7M from $12M in 2002. Managing Director Dr Graham Scott notes that total income increased by 21% to $46.6M from $38.5M in 2002. Operating profits were up 32% to $26.2M, with expenses kept to a 10% increase. The bank will hold its annual general meeting on April 22.
Leading the profits surge was Interest on Investments, reaching $31.2M, an increase of 49% on 2002. At the heart of the company's current investment strategy are Cari-com government US$ bonds. These are issued by five Caribbean countries - Trini-dad and Tobago, Jamaica, Belize, Grenada and Bar-bados- and are traded on the international market. The bonds are redeemable at various dates from 2005 up to 2022 but since they are traded, the yields vary based on their price at any given time.
As with any liquid security the price reflects the prevailing interest rate structure and the economic prospects of the issuing countries, all of which are rated by Moody's and Standard and Poors. This means Barbados with an investment grade credit rating has bonds yielding 4.0% while bonds from the lower rated Jamaica yield up to 10.6%.
Scott recalls that GuyAm Bank identified the opportunity early, and has been able to buy in at favourable prices which have resulted in a yield of over 10% on the investment portfolio. And the tax-free benefits show up in the bank's bottom line with subnormal tax charges on pre-tax profit.
Back when GuyAm first saw the opportunity the economies of many of the Caricom countries were reeling from the effects of the 9/11 attacks on their tourism industry. But 2003 was a strong year for that sector and the bond prices have subsequently improved. A number of local commercial banks, including Citizen's, NBIC and Demerara, have also bought into the market.
All the countries are showing reasonable growth rates with Jamaica set to record 2.2% growth in 2003, Barbados 2.2%, Belize 4.1%, Grenada 3.4% and Trinidad 3.7%.
Scott is encouraged by the outlook for 2004 for these economies and notes that more corporate clients are now bringing funds for GuyAm Bank to invest and manage on their behalf. Funds under management now stand at $1B compared to $212M at the end of 2002.
The economic performances of these countries are in stark contrast to Guyana where the official economy contracted last year, and Scott says the bank while committed to facilitating business opportunities sees few out there at this time. In the meantime the bank has developed a thriving consultancy business that advises companies on financial structuring. This contributed to Fees and other income of $14M last year. The advisory fee component was up 61% from 2002.
Scott is also excited about the establishment of the stock exchange as he sees it as a platform for their goal to help companies go public or issue bonds that could be traded.
GuyAm Bank is registered as a broker, investment adviser and underwriter thus enabling it to act as a distributor of securities through either private placement or public issues. However, Scott says this will not be easy given the extremely low levels of activity. Of the 25 trading sessions in 2003, turnover amounted to $37M with the average number of trades only 10, valued at $1.5M. Nevertheless the bank is ready to offer brokerage services to the public and can offer investment advice.
Scott says the exchange has to do its part in developing a securities culture both for companies and the investing public. At the same time while the government has given its support it can do more given that UK funding for the exchange is set to run out by the end of this year.
The wider prospects for Guyana remain unclear but Scott is adamant that value added exports are the way to go. Companies catering to the local market will not see significant earnings growth, he warns. He says the private sector has to become more pro-active and simply take more risks. He says despite the difficult local environment GuyAm Bank is in it for the long haul and is still looking to assist companies to develop their businesses and create jobs.