Bank of Nova Scotia BNS-T chief executive officer Scott Thomson expects uncertainty prompted by political leadership changes in the United States and Mexico – key markets at the heart of his plan to revamp the bank – will pass quickly, giving way to strong economic growth potential in North America.
One year into Mr. Thomson’s strategic plan to rejig Scotiabank’s businesses, the lender’s future in part hinges on its ability to reallocate money to its North American businesses, where it believes it has bigger opportunities for growth resulting from increased trade between the countries. While discussing the bank’s fourth-quarter earnings results on Tuesday, the CEO said that the economic and government changes in the lender’s most important markets should not affect the bank’s plan in the years ahead.
In November, U.S. president-elect Donald Trump said he would impose 25-per-cent tariffs on all products from Canada and Mexico, which would stunt trade across North America. Mexican president Claudia Sheinbaum – who took office in October – is a former climate scientist tasked with managing a widening government budget deficit in a year when the country’s economy is expected to slow slightly.
Scotiabank is closely monitoring policy decisions from the new administrations in Mexico and the U.S., Mr. Thomson said.
“While new governments often bring initial uncertainty with respect to trade policy and relations, we believe policy will ultimately support a co-operative environment that encourages capital investment and continued regional growth,” Mr. Thomson said during a conference call with analysts.
“We continue to believe in the long-term economic growth potential of the North American Corridor and the strategic value that connectivity among Canada, the U.S. and Mexico will provide to our clients and to the long-term success of the bank.”
On home turf, with economists predicting further interest rate cuts by the Bank of Canada, Mr. Thomson said more rate reductions in the first half of 2025 should stimulate the housing and mortgage markets, as well as consumer and business confidence.
Scotiabank reported higher fourth-quarter profit Tuesday but missed analysts’ estimates because of higher-than-expected expenses and lower profit in its capital markets business.
A breakdown of the big Canadian banks’ fourth-quarter earnings
Adjusted to exclude certain items, including impairment charges related to Scotiabank’s investment in China-based Bank of Xi’an Co Ltd. and a higher-than-expected tax rate, the bank said it earned $1.57 per share. That fell below the $1.60 per share analysts expected, according to data from the London Stock Exchange Group.
Scotiabank’s stock price slumped 3.4 per cent in Toronto. The lender’s shares have climbed 20 per cent this year, outperforming the 17-per-cent rise of the S&P/TSX Composite Banks Index.
Scotiabank is the first major Canadian bank to report earnings for the fiscal fourth quarter. Royal Bank of Canada and National Bank of Canada will report results on Wednesday. Toronto-Dominion Bank, Bank of Montreal and Canadian Imperial Bank of Commerce will wrap up earnings week for the Big Six lenders on Thursday.
Scotiabank’s profits rose from the same period a year earlier across most of the bank’s business, including a 34-per-cent increase in Canadian banking, where loan balances grew 2 per cent year over year and deposits rose by 7 per cent. A major component of Scotiabank’s new strategy relies on building its deposit base to tap into a cheaper source of funding.
In the past year, Scotiabank has added 280,000 retail primary clients, who are customers that have a daily chequing account as well as another payment or investment product. As part of its plan, the bank set a goal to reach two million additional primary clients by 2028.
Personal and commercial deposits made up 51 per cent of all bank deposits as of Oct. 31, up from 48 per cent in 2023. By 2028, Scotiabank plans for personal and commercial deposits to make up about 55 per cent of all bank deposits.
“Our results reflect a year transition as we focused on our enterprise-wide priorities, aligned our capital allocation to each of our business lines and started our shift to a value over volume strategy,” Mr. Thomson said.
“While this progress is meaningful, in order to meet our two-million incremental primary client target by 2028, we need to accelerate our progress in 2025 and beyond.”
Scotiabank set aside $1.03-billion in provisions for credit losses – the funds banks set aside to cover loans that may default. That was lower than analysts anticipated, but higher than the amount it set aside in the same quarter last year.
But as Canadians continue to grapple with high borrowing costs, Scotiabank set aside more funds for against loans that may not be repaid, based on models that use economic forecasting to predict future losses. The bank earmarked $1.04-billion for impaired loans as risk rises for debt in personal mortgages and home equity lines of credit.
Scotiabank released $13-million in reserves for performing loans, which is debt that is still being repaid.
The bank’s chief risk officer, Phil Thomas, said he expects provisions for credit losses to “remain slightly elevated” in the first half of 2025, before they ease in the latter half of the year as interest rates fall.
Editor’s note: A previous version of this article misspelled the name of Bank of Xi’an Co Ltd, based on an incorrect spelling from the source. This version has been updated.