Revenue rises and provisions ease as Scotiabank focuses on North America and prepares for KeyCorp gains
Bank of Nova Scotia CEO Scott Thomson expressed confidence in the bank's ability to meet its earnings targets for the next two years, despite ongoing economic uncertainty.
According to Financial Post, Thomson noted concerns about potential recession risks in Canada if the incoming US administration imposes a 25 percent tariff on Canadian and Mexican imports.
However, he described the uncertainty as temporary.
“We are closely monitoring policy actions from the new administration in Mexico as well as the incoming US administration,” Thomson said during a call with analysts about the bank’s fourth-quarter results.
“While new governments often bring initial uncertainty with respect to trade policy and relations, we believe policy will ultimately support a co-operative environment.”
Scotiabank is shifting its strategic focus to allocate more capital to North America. It plans to increase capital investment in Canada while redirecting funds from Latin American businesses to its corporate operations in the US.
The bank aims for earnings growth of 5 to 7 percent in 2025, moving toward double-digit growth in 2026. This growth is expected to benefit from Bank of Canada interest rate cuts, which would boost the economy and lower provisions for credit loans.
The bank’s US$3.9bn acquisition of a 14.9 percent stake in Cleveland-based KeyCorp is expected to contribute significantly to net interest income starting in 2026.
Thomson emphasised that the 2025 outlook does not include contributions from KeyCorp. “That’s a meaningful NII (net interest income) contributor,” he said.
“That is a component of the double-digit growth into 2026. The five (precent) to seven precent (growth), to be clear, does not include any contribution from KeyCorp in the 2025 outlook.”
Scotiabank reported net income of $1.6bn for the quarter ending October 31, a 25 percent increase from the same period last year.
The bank attributed the rise to higher net interest income and lower provisions for credit losses (PCLs). Revenue for the quarter reached $8.5bn, up 3 percent year-over-year, with adjusted revenue also totalling $8.5bn, reflecting an 8 percent increase.
Adjusted earnings rose to $2.1bn, or $1.57 per share, a 29 percent increase from last year. However, this fell short of analyst expectations of $1.60 per share due to a higher-than-anticipated tax rate.
Jefferies Inc. analyst John Aiken commented, “The headline miss will garner some concern in the market today. However, as the market parses through the numbers, the fact that the bulk of the disappointment centres around a higher-than-expected tax rate should garner some relief.”
Shares of Scotiabank declined by over 3 percent on the S&P/TSX composite index during trading on Tuesday.
Provisions for credit losses decreased by $226m year-over-year, but the provision for impaired loans increased by 30 percent to $1.03bn. The rise was driven by higher formations in Canadian retail and commercial banking portfolios, the bank said.
Chief Risk Officer Phil Thomas noted signs of improvement in the mortgage portfolio, particularly as interest rates fall. “We’re actually seeing some improvement as customers come in for renewal,” he said.
“This quarter, we saw fixed-rate mortgage customers holding about six precent more in their deposit account quarter to quarter, and (variable-rate mortgage) customers about 5.5 precent more in their deposit account. You can start to see there are some early signs.”
The bank maintained its quarterly dividend at $1.06 per share. Thomson described the fiscal 2024 results as “solid” and highlighted the need to enhance profitability through client-focused initiatives.
“While I am encouraged by our strategic progress to date, there is significant work ahead as we focus on client primacy initiatives to drive enhanced profitability across our businesses,” Thomson said in a release.
