Scotiabank Earnings Drop With Rise in Loan-Loss Provisions

By Robb M. Stewart

Bank of Nova Scotia logged weaker earnings in the latest quarter thanks mainly to a rise in loan-loss provisions, which offset increased revenue.

Scotiabank's net income fell to 2.09 billion Canadian dollars ($1.53 billion), or C$1.57 a share, for the fiscal second quarter against C$2.15 billion, or C$1.68, a year earlier. On an adjusted basis that strips out certain items such as restructuring costs, the Canadian bank reported earnings of C$1.58 a share, compared with the C$1.56 mean forecast of analysts polled by FactSet.

Overall revenue grew to C$8.35 billion for the for the three months to April 30 from C$7.91 billion, where analysts expected C$8.33 billion.

Net interest income was up 5.2% to C$4.69 billion, while noninterest revenue rose 5.8% to C$3.65 billion.

Scotiabank, one of Canada's largest banks, recorded a total provision for credit losses of C$1.01 billion, up C$45 million from the previous quarter and C$298 million higher than a year earlier. The lender's provision for credit losses on impaired loans increased $354 million on last year thanks to higher formations in its international retail portfolios, mostly in Colombia, Chile and Peru, as well as higher provisions in the Canadian retail portfolios, primarily on auto loans and unsecured lines.

Gross impaired loans increased to C$6.4 billion as of the end of April from C$6.12 last quarter, which it said was primarily due to new formations in retail portfolios in Chile and Mexico, and in its international commercial arm, mostly in the real estate sector in Chile.

Toronto-Dominion Bank kicked off earnings season last week for the big banks, reporting a sharp drop in second-quarter earnings with restructuring and other charges and an increase in its credit-loss provisions. The banks have been setting aside more money in recent quarters against the risk of loan losses as borrowers have been squeezed by sharply higher interest rates.

Scotiabank's common equity tier capital 1 ratio expanded to 13.2% from 12.3% last year. The country's banking regulator late last year opted against requiring lenders to set aside more capital against potential losses, holding the CET1 target for the big banks at no less than 11.5% of risk-weighted assets.

Write to Robb M. Stewart at robb.stewart@wsj.com

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May 28, 2024 06:43 ET (10:43 GMT)

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