Scotiabank tops forecasts even as profit slips on high loan losses, weaker international showing – The Globe and Mail

Bank of Nova Scotia’s fiscal fourth-quarter profit fell nearly 18 per cent as provisions for loan losses remained high and profit from its international division fell sharply.

Even so, Scotiabank far outperformed analysts’ expectations, bolstered by rising profits from capital markets and wealth management. The country’s third largest bank is the first to report earnings for the fiscal quarter that ended Oct. 31. Full-year profits declined 22 per cent to $6.85-billion amid the continuing impact of the novel coronavirus pandemic.

In the fourth quarter, Scotiabank earned $1.9-billion, or $1.42 per share. That was down from $2.31-billion, or $1.73 a share in the same quarter last year.

Adjusted to exclude items, including costs from a series of acquisitions and divestitures, Scotiabank said it earned $1.45 per share. On average, analysts were expecting adjusted earnings per share of $1.21 per share, according to Refinitiv.

Scotiabank kept its quarterly dividend unchanged at 90 cents per share, in keeping with temporary restrictions set by Canada’s banking regulator.

For the full fiscal year, Scotiabank earned $5.30 per share, compared with $6.68 a year ago, a decline of nearly 21 per cent. The bank’s return on equity fell to 11 per cent, from 13.3 per cent in 2019.

In the quarter, the bank added another $1.13-billion in provisions for credit losses – the money banks set aside to cover loans that could go sour. That was an increase of 50 per cent from the same quarter a year ago, but sharply lower than the $2.18-billion in provisions the bank earmarked in the third quarter this year.

The bank attributed the decrease to dimmer economic forecasts resulting from the COVID-19 pandemic.

As expected, a large majority of the payment deferrals Scotiabank had granted to customers on mortgages, credit cards, personal loans and business loans expired in the fourth quarter. Deferred balances have fallen 96 per cent from their peak in the second fiscal quarter.

But 35,000 customers accounts in Canada, with loans worth $4.89-billion, are still in deferral. And another 486,000 accounts in the bank’s international operations, which are concentrated in Mexico, Peru, Chile and Colombia, with a total balance of $6-billion, also still have payments on pause. A majority of those accounts are credit cards, which are unsecured debt, and 90.5 per cent of those accounts are returning to regular payments after deferrals expire.

Earnings in Scotiabank’s key Canadian banking operations fell 13 per cent to $778-million in the fourth quarter, mostly because of higher provisions for credit losses.

In the bank’s international division, which is concentrated in Latin America, profits plunged 61 per cent to $333-million. Higher provisions for loan losses were compounded by divestitures of operations abroad that reduced some revenues. But chief executive Brian Porter said those efforts to reduce the bank’s exposure to risky foreign markets “have played a significant role in our operational resilience throughout the COVID-19 pandemic,” in a statement.

Profits from capital markets improved 14 per cent from the same quarter a year ago, to $460-million, and the bank’s wealth management arm, which has been retooled after a pair of major acquisitions, improved its quarterly profit by 8 per cent year over year to $325-million.

Scotiabank also boosted its capital levels, reporting a common equity Tier 1 (CET1) ratio of 11.8 per cent, up from 11.3 per cent in the third quarter. The ratio is considered a key measure of a bank’s resilience, and its ability to absorb losses in a crisis.

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