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Bank of Nova Scotia BNS-T reported a drop in first-quarter profit, missing analyst expectations as the lender set aside more money for bad loans and net interest margins were squeezed.
Scotiabank earned $1.77-billion, or $1.36 per share, in the three months that ended Jan. 31. That compared with $2.74-billion, or $2.14 per share, in the same quarter last year.
Excluding certain items, the bank said it earned $1.85 per share. That fell below the $2.02 per share analysts expected, according to Refinitiv.
“The Bank’s performance in the first quarter of 2023 reflects both the merits of a diversified platform, and also the continued relative pressure on our profitability given our funding profile,” chief executive officer Scott Thomson – who stepped into the top job on Feb. 1 – said in a statement. “As we look ahead, our efforts on culture, capital allocation discipline and operational excellence will drive a renewed strategic agenda focused on delivering value for our stakeholders.”
Scotiabank is the third major Canadian bank to report earnings for the fiscal first quarter. Early Tuesday, Bank of Montreal posted earnings that beat analyst estimates. Canadian Imperial Bank of Commerce reported earnings on Friday that topped analyst estimates on a profit boost from its trading business, as well as lower-than-expected loan loss provisions. Royal Bank of Canada and National Bank of Canada are set to announce results on Wednesday, followed by Toronto-Dominion Bank on Thursday.
Scotiabank set aside $638-million in provisions for credit losses – the funds banks set aside to cover loans that may default – rising from $222-million in the same quarter last year.
That was in line with analysts expectations, and included $76-million against loans that are still being repaid, compared with a reversal of $183 million in the same quarter last year. The bank said that the increase was due to portfolio growth in its international banking division and a deteriorating economic forecast largely in its corporate and commercial portfolios.
The bank’s net interest margin — the difference between what its earns on loans and pays on deposits — slumped to 2.11 per cent from 2.16 per cent in the same quarter last year, even as rates rose.
“We do not believe that expectations were high for Scotia in the first quarter but the miss will likely be viewed as a disappointment as margins declined in International” and were flat domestically, Barclays analyst John Aiken said in a note to clients.
Total revenue fell to $7.98-billion in the quarter, down from $8.05-billion. Expenses grew to $4.46-billion from $4.22-billion.
Canadian banking profit decreased to $1.09-billion from $1.2-billion per cent from a year earlier as higher revenue was offset by rising loan loss provisions and expenses.
Its international banking arm – focused on Chile, Colombia, Mexico and Peru – posted $654-million in net income, rising from $545-million in the same period a year prior, driven by higher net interest income and non-interest income.
Profit in the global banking and markets division was $519-million, a 7 per cent decrease from the same quarter last year as higher costs and provisions for credit losses offset higher net interest income. And profit in the wealth management division fell 7 per cent to $385-million.
The bank kept its quarterly dividend unchanged at $1.03 cents per share.
