Scotiabank 3Q Earnings Fall With Higher Loan-Loss Provisions

By Robb M. Stewart

Bank of Nova Scotia's earnings were squeezed in the latest quarter by an increase in credit-loss provisions.

Scotiabank recorded a fall in net income to 1.91 billion Canadian dollars (US$1.42 billion), or C$1.41 a share, for the fiscal third quarter against C$2.19 billion, or $1.70, a year earlier. On an adjusted basis that strips out certain items, the Canadian bank reported earnings of C$1.63 a share, just ahead of the C$1.62 mean forecast of analysts polled by FactSet.

Overall revenue rose to C$8.36 billion for the for the three months to July 31 from C$8.07 billion, where analysts expected C$8.53 billion.

Net interest income was up 6.3% to C$4.86 billion, while noninterest revenue edged up 0.2% to C$3.5 billion.

Scotiabank, one of Canada's largest lenders, recorded a total provision for credit losses of C$1.05 billion, up C$45 million from the previous quarter and C$233 million higher than a year earlier. The bank's provision for credit losses on performing loans was little changed on last year, but the provision on losses on impaired losses increased 31% thanks higher formations in its international banking retail portfolios, mostly in Colombia, Chile and Peru, as well as higher provisions in its Canadian retail portfolios, primarily related to auto loans and credit cards.

Canada's large banks continue to set aside more money against the risk of soured loans as borrowers continue to struggle with sharply higher interest rates, despite two cuts in as many months this year in the Bank of Canada's policy rate as inflation has steadily cooled.

Toronto-Dominion Bank kicked off earnings season last week for the big banks, reporting a 9.8% increase in total revenue for the quarter but a credit-loss provision of C$1.07 billion, up just C$1 million from the prior quarter but C$306 million greater than a year earlier. Bank of Montreal earlier Tuesday reported a 1.7% rise in revenue on last year but booked a provision for credit losses of C$906 million against C$705 million put aside against potential losses due to credit risk the quarter before and C$492 million a year earlier.

Scotiabank said adjusted earnings in its Canadian banking and international banking operations were up on last year, though that was partially offset by increased provisions for credit losses. Global wealth management earnings also increased as revenue was boosted by higher fee-based client assets, while earnings in global banking and markets slipped on a year earlier as increased corporate and investment banking revenue was more than offset by a higher credit-loss provision.

The lender's common equity tier capital 1 ratio stood at 13.3% at the end of July, an increase of roughly 0.1 percentage point on the prior quarter. 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.

Earlier this month, Scotiabank agreed to invest $2.8 billion for an almost 15% stake in regional lender KeyCorp., expanding its reach in the U.S. and offering exposure to retail banking in the country.

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

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August 27, 2024 06:56 ET (10:56 GMT)

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