Bank of Nova Scotia profit beats estimates on provisions, capital markets earnings slip

A woman leaves a Bank of Nova Scotia (Scotiabank) branch in Ottawa, Ontario, Canada

Bank of Nova Scotia (BNS.TO) (Scotiabank) beat analysts’ estimates for second-quarter profit on Tuesday, driven by fewer-than-expected provisions to cover loan losses, although that impact was somewhat offset by a surprise decline in earnings in its global banking and markets division.

The performance of its capital markets unit makes Scotiabank the first major financial institution in Canada to not see an increase in profit in a segment that received a boost from record deal-making in the early months of this year.

But Canada’s No. 3 lender still fared better than expected, reporting adjusted net income of C$2.48 billion ($2.06 billion), or C$1.90 a share, in the three months ended April 30, compared with analysts’ estimates of C$1.76 a share, based on IBES data from Refinitiv.

That was thanks to provisions for credit losses of C$496 million, versus analyst expectations of C$698 million, down from C$1.8 billion a year earlier.

While that included the release of about C$200 million of allowances on performing loans, Scotiabank did set aside nearly nearly C$2 billion to cover impaired loans, a 37% increase from a year earlier due to higher retail loan write-offs in its Pacific Alliance-focused international banking unit.

The results wrap up a better-than-expected quarter for Canada’s six biggest lenders that was driven by lower provisions than analysts had predicted, as a raft of government stimulus measures and the banks’ own deferrals on loan payments last year kept a lid on soured loans.

But that masks some challenges, particularly in commercial loan growth, which has remained sluggish, and flat to lower net interest margins.

Scotiabank reported overall net profit of C$2.46 billion, or C$1.88 a share, up from C$1.32 billion, or C$1 a share, a year ago.

Was it worth reading? Let us know.