Scotiabank misses expectations on higher loan-loss provisions, but hikes dividend

Scotiabank missed expectations in the second quarter, but raised its dividend. Photo by Ben Nelms/Bloomberg

The Bank of Nova Scotia missed expectations in the second quarter as it put aside more cash for loans potentially going sour as the economic outlook darkens.

However, the bank raised its quarterly dividend and showed resilience with deposit growth and liquidity in the wake of multiple bank failures in the United States in March.

Scotiabank’s net income fell over 20 per cent to $2.16 billion in the three months ending April 30 compared to the same time last year. On an adjusted basis, the bank’s profit fell to $2.174 billion, or $1.70 per share. Bloomberg analysts had been expecting $1.76 per share.

Despite the miss, Scotiabank is the first of the Big Six out of the earnings gate to show that the banking crisis that played out south of the border has left its capital position little changed. Its capital equity tier 1 ratio, which compares a bank’s capital against its risk-weighted assets to gauge its resilience, stood above the regulatory 12-per cent requirement at 12.3 per cent.

The bank also increased its dividend by three cents to $1.06 per share, payable on July 27.

“I am pleased with the Bank’s stable operational performance in the quarter and encouraged that our strong capital and liquidity profile positioned us well to manage through the current environment of heightened macroeconomic uncertainty,” said Scotiabank president and chief executive Scott Thomson in a press release accompanying the results.

The bank’s customer deposits outpaced loan growth with a double-digit percentage increase from the year before.

However, a darkening economic outlook that primarily impacted corporate and commercial portfolios prompted the bank to increase its provision for credit losses — the funds banks set aside to cover potentially bad loans — to $709 million, compared to $219 million in the same quarter last year.

Scotiabank’s Canadian banking segment posted adjusted profit of $1.06 billion this quarter compared to about $1.18 billion last year, weighed down by higher provisions for credit losses and higher non-interest expenses.

Adjusted profit in the international banking business was also held back by higher credit loss provisions, shrinking to $673 million in the second quarter compared to $689 million the same time last year. The bank added that pre-tax, pre-provision earnings increased due to strong loan growth and net interest margin expansions.

Scotiabank’s global wealth management business profit fell to $362 million on an adjusted basis from $415 million a year earlier, while adjusted earnings in global banking and markets was also down to $401 million from $488 million in the year ago period.

Scotiabank’s conference call discussing the results will take place later this morning at 7:15 a.m. ET.

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