After announcing a huge earnings drop, National reveals it will attempt to build up its capital
Having reported less than stellar Q2 results earlier this week, National Bank has announced its recent international acquisition drive would be put on hold for the next year.
Louis Vachon, CEO of the bank, stated the reasoning behind the decision in a conference call to investors after reporting second-quarter results on Wednesday. “The priority right now is increasing our capital above 10 percent," he explained, “Everybody is looking to optimize the balance sheet, and that’s what we’re doing."
The decision represents something of a volte-face for Canada’s sixth largest bank, which had embarked on ambitious international spending spree over the past two years. Most recently, National Bank paid $103 million in May to boost its ownership stake in Cambodia’s Advanced Bank of Asia Ltd. to 90 percent. This marked the first time the Montreal-based lender had taken majority operating control of a bank outside of North America.
NB also holds minority stakes in AfrAsia Bank in Mauritius, financial group NSIA Participations of Cote d’Ivoire, and the holding company that controls XacBank LLC in Mongolia.
Now that expansion efforts have been put on the back-burner for the time being, the bank is aiming to reach a 10 percent Common Equity Tier 1 Capital ratio. NB’s capital ratio was 9.8 percent at the end of April, and its CEO stated it should reach its target by the end of fiscal 2017 at the very latest.
The change in strategy won’t surprise many industry observers, especially considering the fact National Bank revealed Q2 profits of $210 million this week. That represented a fall of 48 per cent from last year and is contrary to the performance of the Big Five so far this year.
Bad loans to the energy sector were blamed for the result, but the bank said Canada’s oil woes would not be as much of a factor going forward for NB.
