Scotiabank Puts Aside More for Loan Losses Than Slated

Bank of Nova Scotia is setting aside more money than previously planned for souring loans amid the coronavirus pandemic, indicating the lender sees a need to further shore up reserves to weather a wave of impairments.

  • When Scotiabank reported second-quarter earnings that included a record amount for provisions in May, Chief Executive Officer Brian Porter said third-quarter set-asides would be similar. He underestimated, with the bank on Tuesday reporting provisions of C$2.18 billion ($1.65 billion), a new high, in earnings that missed analysts’ expectations.

Key Insights

  • Scotiabank set aside less than all other major Canadian lenders except Bank of Montreal for provisions in the second quarter when measured as a percentage of loans. In the third quarter, the percentage was 1.36%, compared with 1.19% in the prior quarter and 0.48% a year earlier.
  • Canadian banking is Scotiabank’s largest division, typically accounting for more than a third of overall profit. The domestic-banking division had earnings of C$429 million in the third quarter, down 53% from a year ago as loan-loss provisions weighed on results.
  • Scotiabank now operates in about 30 countries after spending the last six years scaling back its international reach to focus on the Americas, with an emphasis on Mexico, Peru, Chile and Colombia. The international-banking division had a C$28 million loss, compared with a profit of C$844 million a year earlier, as provisions swelled to C$1.28 billion.
  • Scotiabank’s capital-markets division has been showing signs of a turnaround in 2020 after enduring two years of shrinking revenue and profit. That turnaround is gaining traction, with earnings rising 60% to C$600 million as trading jumped.

Market Reaction

  • Scotiabank had fallen 23% this year through Monday, more than the 13% decline for Canada’s eight-company S&P/TSX Commercial Banks Index.

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  • Net income for the three months ended July 31 fell 34% to C$1.3 billion, or C$1.04 a share.
  • Adjusted earnings also totaled C$1.04 a share, missing the C$1.10 average estimate of 11 analysts in a Bloomberg survey.
  • Read more about Scotiabank’s quarterly results here.

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