Retirement for 62-year-old Richard Young, managing director and country head of Scotiabank, means “just another chapter” in his life to explore other opportunities. It may also mean doing something different, “maybe something totally out of banking.” Young spoke to the Business Guardian for three hours on July 6, at Scotia Centre building, corner Park and Richmond Streets, Port-of-Spain. He will be leaving the bank at the end of its financial year: October 31. Bowing out after 17 years of service at Canadian-owned Scotiabank, Young said he believes the bank is in a bigger and better state now than when he inherited it. “I certainly believe that the people who I leave have been developed to a point where they can take the bank to a higher level to outdo what I did, to show me up,” he said, with a low laugh. “What I feel good about is that we have grown in size. We have a life insurance company, which many other banks don’t have. We have broadened our banking base. The biggest thing, really, is knowing that I am leaving a cadre of people, who I believe are very professional people, who are equipped to a point where they can take the bank to another level, and to me, that is what I will consider to be my legacy.”
For the six months ended April 30, 2012, the Scotiabank Group realised net income after tax of $268.7 million, an increase of 2.4 per cent over the comparative period a year ago. Young began his career in the financial sector at 29 when he was admitted to the partnership at PricewaterhouseCoopers (Trinidad). He later joined NEM (West Indies) Insurance Ltd in 1992. In 1995, Young left insurance and joined Scotiabank, becoming the managing director in 1997. Young has a list of things he wants to do in his retirement: spend more time with his four grandchildren and family, read books collected over the years and consult. “I certainly would love to take all those learnings and experiences and really put it together and contribute in whatever form. Consultancy is an option, I am ready to deal with anything,” Young said. Clearing the air on reports he was being considered as the next Governor of the Central Bank, Young simply said, “No, the Prime Minister has not spoken to me recently. Why should the Prime Minister call me? I don’t understand why.”
According to its half-year results, January 2012 to April 2012, Scotiabank’s deposits with the Central Bank grew by $232.1 million. Asked whether it was prudent to deposit excess money into the Central Bank, Young said, “The system is flush with liquidity. Sometimes we wonder if we should continue to take deposits. We take deposits and deposit a certain portion at the Central Bank. We service the entire amount. We pay deposit insurance. “The money is sitting there; we are servicing the money and we’re just not employing it at all. What we have been able to do in the last little while, really, is become a little more efficient in our business so we manage our costs.” The Central Bank’s April 2012 Monetary Policy Report states there was “considerable build-up” in liquidity in the financial system in March 2012. Commercial banks’ reserves in excess of the statutory requirement rose to a daily average of $5.7 billion in December 2011, from $4.6 billion in September, and climbed to a record high of $6.6 billion in March 2012. The career banker said savings are not being translated into productive lending. Too much money in the system would create an overheated economy, which would cause price escalation. The Central Bank requires a commercial bank to pay 17 per cent of each $1 deposited to primary reserves, and two per cent to the secondary reserve.
Excess liquidity was not the only issue Scotiabank had to deal with. “We continue to manage the interest margin,” Young said. “Margins have compressed and you would notice where Scotiabank’s profitability has not grown as fast as it has over the years, we are constantly challenged—that’s the biggest thing.” Scotiabank reduced its loan losses, Young said.
According to the bank’s half-year results, “Net loans to customers, which accounts for 58.9 per cent of total assets, declined versus the previous year, by $351.5 million or 3.3 per cent as scheduled paydowns continue to outstrip the value of new loans booked for the period.” Commenting on its reduced loan losses, Young said, “It is testimony of the last couple of years where things began to slow down, we obviously tightened up our lending criteria. “What we did ten years ago was take the bank and changed its focus to be a more sales and service organisation and did all sorts of initiatives to support it. Once you became a sales and service organisation, you obviously brought on assets and you grow the business.” According to Young, the bank bringing on assets means there is a spike in loan losses, which is expected as more risks are taken.
Shareholders’ equity increased to $2.94 billion, up 12.7 per cent compared to the same period in 2011. Shareholders’ equity comprises stated capital, that is, capital that shareholders inject into the business and retained profits. “When we make our profits, we don’t pay all of it in dividends. “We’ve tended to always pay around 40 per cent of our profits as a dividend, so we have retained 60 per cent and that helps grow the capital base in a bank. The idea is the stronger the capital you have, the greater your ability to withstand any shocks.” One of Scotiabank’s regulations is that it shouldn’t lend to any borrower/group more than 25 per cent of the bank’s capital. Lending beyond 25 per cent is taking a big risk: the bank can be severely impacted if that borrower goes belly-up. Young is pleased that at half-year, Scotiabank will be paying out dividends of $0.64.
“When you are paying a dividend today, whilst it is based on your historic earnings, it also has to be interpreted as a signal to your shareholders as to how confident you are in terms of: Can you maintain it? Can you sustain that dividend? Are you comfortable and confident in the future to continue to pay that dividend? “As you’ve seen in one large conglomerate, they paid a large dividend and in one month’s time,” Young said, not singling out any financial institution, “they collapsed.”
Better financial regulation
With decades of experience in finance, Young said financial sector regulations are not being used properly. “My personal feeling is that, as a country, we have lots of laws and regulations. The challenge of it is how much of it is really observed? How much of it is being implemented or adopted? “That’s where, if you look at the CL Financial fiasco—I am not trying to blame regulators—perhaps the regulators could have been a little more vigilant.” In Young’s view, regulations in the financial sector have “to be constantly reviewed and revamped” because the world is rapidly changing. Every four years or so, financial legislation should be reviewed. Asked if Scotiabank has outgrown its counterpart, First Citizens, Young said, “It might sound self-serving for me to answer that. Let’s face it: it’s a State bank, so it’s a natural captive customer base of all the Government business. “When you (First Citizens) have your shareholder (CMMB) being one of your bigger customers, it certainly would help (to increase its growth). That’s not to take away from the merits and the recognition of First Citizens having done a great job under Larry’s (Howai) leadership.” Asked to identify the advantages of having three Canadian banks in T&T—the other two being RBC Royal Bank and CIBC FirstCaribbean International Bank—Young said, “It augers well because we are coming from an ownership where the system is a very stable system, where the Canadians are known to be very conservative.” Regarding the T&T economy, he said, “When you compare ourselves to the rest of the world and people know what’s happening, it is not as bad as it is. The world hasn’t crashed, T&T hasn’t crashed, I still feel very positive.”
Presiding over banks
In his second term as president of the Bankers Association of T&T, Young said it is more efficient in many initiatives when it comes to speaking to the public with one voice on matters, such as anti-money laundering and anti-terrorism financing. “If we didn’t work together, if we didn’t invest in a credit bureau, you may find a delinquent person moving from institution to institution and becoming delinquent with all institutions. By working together, you stamp that out.”
YOUNG SPEAKS ON COMPETITION
Overall, the banking sector is competitive because if one bank introduces a new product/service to the market, within three or four months the other banks will introduce the same product/service. With competition swift, Young said banks sometimes have to choose what product/service they want to lead in. “Strategically, you don’t necessarily want to be leading in everything, you’ll pick the ones you want to lead in and the others you kind of fall through,” he said. Providing online banking, was one service which Scotiabank lead in but, sometimes it is better to adopt a wait-and-see approach. “I inherited a fairly solid bank my predecessor left an excellent foundation for me. When you look at the way in which the branches were located in T&T, they were well selected. It was a conservative bank, it was solid, in a broad sense you could say there were no skeletons or anything like that. I was lucky because I inherited a fine institution. “Like everything else we had to evolve. Scotiabank was entering into a new era of leadership, so there was the expectation with the new leader, things would be different, the bank would grow and you had to develop people. The world is becoming more and more competitive. With the changing times, it meant the bank had to change, evolve.”