Scotiabank reported $2.6-billion in second-quarter profit on Wednesday.Sammy Kogan/The Globe and Mail
Bank of Nova Scotia BNS-T posted a boost in second-quarter profit that topped analysts’ expectations on growth in its Canadian banking unit as the lender seeks to bolster its profitability.
The lender has been focused on expanding its domestic business by growing lower-cost deposits and selling more products and services to its clients. But competition for deposits has been heating up in Canadian banking as lenders bid to attract more cash from their customers.
“In Canadian banking, the momentum is building, and we are delivering better results quarter after quarter after quarter,” Scotiabank chief executive officer Scott Thomson said during a conference call with analysts.
Scotiabank’s profit in the quarter climbed 30 per cent to $2.6-billion, or $2.00 per share, in the three months that ended April 30. Adjusted to exclude certain items, the bank said it earned $2.02 per share. That beat the $1.93 per share analysts expected, according to data from Bloomberg.
Big banks poised to report strong profits as they buck economic uncertainty
Mr. Thomson has said he expects double-digit earnings per share growth in its domestic banking business this year. The unit is key to Scotiabank’s plan to boost its profitability.
Last quarter, Scotiabank said it expects to hit its target of 14-per-cent return on equity in 2027, a year earlier than expected. In the second quarter, Scotiabank posted an adjusted return on equity of 13.2 per cent.
Profit from Canadian banking was $935-million, up 53 per cent from a year earlier on higher revenues and lower provision for credit losses on performing loans. Loan balances rose slightly by 3 per cent year over year and mortgages grew 4 per cent as high interest rates and economic uncertainty weigh on demand for borrowing.
While average deposit volumes in the business decreased 3 per cent as clients moved money out of longer-term investment accounts, deposits in personal daily chequing and savings accounts grew 3 per cent.
Scotiabank’s turnaround strategy also hinges on improving its international unit and growing its capital markets division in the United States.
Mexico and Chile have struggled with high interest rates and economic challenges, and profit in Scotiabank’s international division rose 1 per cent to $701-million. Capital markets profit rose 11 per cent to $457-million.
Scotiabank is the first major Canadian bank to report earnings for the fiscal second quarter. Bank of Montreal BMO-T and National Bank of Canada NA-T also reported earnings on Wednesday. Royal Bank of Canada RY-T, Toronto-Dominion Bank TD-T and Canadian Imperial Bank of Commerce CM-T will post earnings on Thursday.
TD bets on its Canadian businesses to prop up its growth ambitions
In the quarter, Scotiabank set aside $1.2-billion in provisions for credit losses – the funds banks set aside to cover loans that may default. That was lower than the same quarter last year but higher than analysts anticipated, and included $1.1-billion against loans that the bank believes may not be repaid, based on models that use economic forecasting to predict future losses.
Scotiabank said the increase in impaired provisions was driven by a large corporate account in Brazil.
In Canada, consumers and businesses continued to grapple with inflation, high borrowing costs and economic uncertainty as trade negotiations loom.
“The macroeconomic environment remains uncertain, shaped by geopolitical developments and elevated energy costs that continue to affect trade flows and the GDP growth outlook,” Scotiabank chief risk officer Shannon McGinnis said. “In Canada, near-term growth has moderated amid continued trade headwinds, and inflation remains a key focus for policy maintenance.”
The bank raised its quarterly dividend by 4 cents to $1.14 per share.