Scotiabank reports third-quarter revenue gains as lending surges as financial markets weigh

TORONTO-

Turbulent financial markets weighed on Scotiabank’s third-quarter results, but the bank saw earnings rise on higher interest income from continued loan growth.

On Tuesday, the bank was the first of the Big Six to publish its financial resultsposting net income of $2.59 billion for the quarter ending July 31, up from $2.54 billion in the same quarter last year, as its Canadian banking division reported loan growth of 14% and its international banking division loan growth of 12%.

The increase in lending came as the financial health of businesses and consumers showed continued strength, chief executive Brian Porter said on a call with analysts on Tuesday.

“The macroeconomic backdrop in our key regions remains positive as economies begin to stabilize following a unique confluence of events. In Canada, we view the strength of the labor market as an important counterbalance to the impact of inflation on consumer confidence.

The bank, however, increased its provisions for credit losses by 8% to $412 million, as central banks continued to raise rates in a delicate act aimed at reining in inflation without plunging economies into recession.

“We have taken appropriate steps to ensure we are prudently provisioned in light of a less certain economic outlook,” Porter said.

The slight increase in provisions for comprehensive losses hides wider fluctuations, with the provision for performing loans amounting to $23 million, compared to a net reversal of $461 million last year, the variation being attributed to lower macroeconomic forecasts. favorable. The allowance for impaired loans was $389 million, down from $841 million a year ago, due to lower formations in most markets.

Economic uncertainty and higher lending rates also pushed many homebuyers away, slowing Scotiabank mortgage growth, up just 2% from the prior quarter. .

The bank, however, stressed how strong consumer finances remain despite inflationary pressures, with average deposits still up 14% from pre-pandemic levels, and retail delinquency rates around the half of the pre-pandemic ratio.

Scotiabank said it also expects to attract more customers to the bank through its expanded Scene points rewards program to which it has added partner grocery stores and pharmacies. The bank began rolling out the new program last week in Atlantic Canada and will continue to roll it out across the country over the coming months.

But while lending rose further in the quarter, the bank’s global wealth management and global banking and markets divisions saw their revenues fall, by 14% and 26% respectively, due to activity from lower underwriting as companies raised less money, while the bank also saw lower trading activity as investors retreated in a declining market.

“Robust corporate lending activity was offset by an extremely quiet period for capital markets issuance and challenging markets for trading,” Porter said.

Lower activity in both regions pushed Scotiabank’s results slightly below analysts’ expectations as some expected increased market volatility to boost trading.

The bank reported adjusted earnings of $2.10 per diluted share, down from $2.01 per diluted share a year ago, but below analysts’ expectations of $2.11 per share, according to the data firm. Refinitiv financial markets.

Revenue of $7.80 billion, down from $7.76 billion, was also below expectations of $8.1 billion.

“Due to weak financial markets, mutual fund, brokerage and wealth management revenue declined during the period, as we had expected,” the Edward analyst said. Jones, James Shanahan, in a note. “However, increased market volatility failed to bolster trading revenue, and underwriting activity remains lackluster.”

Bank earnings continue through the week with RBC and National Bank on Wednesday, CIBC and TD Bank on Thursday and Bank of Montreal on August 30.


This report from The Canadian Press was first published on August 23, 2022