(Toronto) Scotiabank said Tuesday it expects continued lending pressure and political uncertainty in the coming months after reporting profits that were up from last year but lower to analysts’ forecasts.
Posted at 7:42 a.m.
Updated at 6:16 p.m.
Ian Bickis
The Canadian Press
The bank kicked off a week of banking results by announcing a profit of 1.69 billion in the fourth quarter, up from 1.35 billion for the same period last year, having set aside a smaller amount for bad debts compared to last year.
Profits were hit by taxes and a writedown of its stake in a Chinese bank, while its Canadian operations were hit by the slowing economy, Chief Executive Officer Scott Thomson said.
“The realities of a slowing economy and the impact of high interest rates have created a challenging operating environment,” he said in a conference call with analysts.
For the full year, profits rose “marginally” thanks to modest loan growth, Thomson said, but he expects the market to improve in the second half of the year. next year, as interest rates continue to fall.
“We expect further easing in the first half of the year, which should boost activity in the domestic housing and mortgage markets and strengthen consumer and business confidence,” Mr Thomson said.
Fears of a rise in mortgage defaults have led all banks to set aside provisions for potentially bad loans, but a 1.25 percentage point cut in the Bank of Canada’s benchmark rate is already easing some concerns.
Scotiabank set aside $1.03 billion in the fourth quarter, compared to $1.26 billion a year ago. This drop is explained by the fact that the bank withdrew certain less worrying loans entirely while the trend of borrowers improved.
Fixed rate mortgage customers held 6% more in their deposit accounts in the quarter compared to the previous quarter, while 90-day delinquencies were down from the previous quarter.
“We are starting to see signs of recovery when it comes to interest rates,” said Phil Thomas, head of risk management.
But the overall drop in provisions includes an increase in the more serious category of provisions for bad debts, those for which the bank believes it will not be able to be reimbursed.
For the Canadian banking sector, provisions for bad debts reached 461 million, up from 286 million last year.
A substantial portion of the increase in provisions comes from about 250 customers, primarily in Toronto and Vancouver, although many borrowers are feeling some pressure, Thomas said.
-“I think across our retail portfolio in Canada, we clearly see the impact of high interest rates over a longer period of time,” he noted.
The effects of higher rates contributed to a slight 1% increase in mortgage and personal loans this quarter from a year earlier in Canada, while credit card loans rose 12%.
As for the political future, Thomson said new governments, like those in the United States and Mexico, bring uncertainty about trade policy and relations, but he is optimistic about at the end.
“We are closely monitoring the policy actions taken by the new Mexican administration as well as the new US administration,” said Mr. Thomson. We believe the policy will ultimately support a cooperative environment that encourages capital investment and continued regional growth. »
A result below expectations
Revenue for the quarter was $8.53 billion, up from $8.27 billion in the fourth quarter of last year.
Earnings were $1.22 per share for the quarter ended Oct. 31, compared with 99 cents in the same quarter a year ago.
Profits increased even though, during the quarter, Scotiabank recorded a charge of 343 million related to the write-down of its investment in Bank of Xi’an in China due to the weakening of the country’s economy.
On an adjusted basis, Scotiabank reported earning $1.57 per share in its most recent quarter, up from adjusted earnings of $1.23 per share last year.
Analysts on average expected adjusted earnings of $1.60 per share, according to data provided by LSEG Data & Analytics.
Jeffries analyst John Aiken said the lower-than-expected result was largely attributable to a higher-than-expected tax rate, while the bank also experienced revenue headwinds and mixed performance in matter of efficiency.
Scotiabank is the first of the big six banks to report its fourth quarter results this week. The Royal Bank and National Bank will release their results on Wednesday, while the Toronto-Dominion Bank, BMO Financial Group and CIBC will release their results on Thursday morning.
Scotiabank reported that its Canadian banking business totaled $1.06 billion for the quarter, up from $793 million in the same quarter last year, mainly due to lower provisions for losses on receivables and an increase in revenues, partly offset by an increase in non-interest expenses.
Scotiabank’s international banking business generated a profit of $628 million attributable to the bank’s shareholders, up from $548 million a year earlier, while the bank’s global wealth management business posted $420 million. , up from 327 million a year ago.
Global banking and markets generated 403 million, down from 414 million in the same quarter last year.
