Scotiabank’s chief risk officer, Phil Thomas, however, said on an earnings call that while the bank is mindful of macroeconomic headwinds, it still sees sound finances for its loan portfolio as indicators such as credit ratings have improved over the past two years.
“We are very confident in the health of the Canadian consumer at this point,” he told analysts.
Scotiabank Chief Executive Brian Porter pointed to the stress tests the bank is under and noted that it is increasing its scenarios given the changing financial landscape.
“Given the macro environment, we are running stress tests which would have tougher inputs today than we might have a year ago.”
For now at least, the bank is benefiting from central bank and housing rate trends, as its net interest income rose 7% in the quarter from a year ago, while loans increased by 13% compared to last year.
In Canada, residential mortgage growth increased by 16% over the previous year, while business loans increased by 19%.
The mortgage segment, however, has started to slow as prime rates rise, said Dan Rees, head of Canadian banking at Scotiabank.
“You’ve seen some slowdown in mortgage growth…there are markets that have obviously risen more in favor of buyers, say, on an easing basis.”
He said the bank saw a sequential decline of around 2.5% in mortgage growth, but still expects to see year-over-year growth for the remaining high-single digit quarters. .
The bank has also pushed further into sectors like agriculture, technology and transportation to further diversify its holdings, Rees said.
“So we’re less dependent on real estate now than we would have been a year or two ago.”
Changes in both the mortgage market and the broader macroeconomic environment mean this final quarter is likely to be a floor for the bank’s loan loss provisions, the bank said.
Scotiabank is also not immune to the inflationary environment, reporting a 3% increase in expenses, including an 8% increase in Canadian division expenses due to higher technology, personnel and advertising costs to support business growth.
The bank expects spending to continue to rise in the second half of the year, but still expects overall sub-10-digit growth as it has many discretionary costs it can adjust .
The bank said it would also moderate its share buybacks in the second half of the year, as its capital position fell to 11.6% thanks to both buybacks and an increase in its stake in Scotiabank Chile. .
Still, the bank raised its quarterly dividend by 3% to $1.03 per share.
The increase came as the bank reported second-quarter profit of $2.75 billion, up from $2.46 billion in the same quarter last year.
The bank’s profit for the quarter ended April 30 was $2.16 per diluted share, down from $1.88 per diluted share a year ago, while revenue totaled $7.94 billion. dollars, compared to 7.74 billion dollars.
Scotiabank’s provision for credit losses was $219 million, down from $496 million in the same quarter last year.
On an adjusted basis, the bank said it earned $2.18 per diluted share for its latest quarter, compared to adjusted earnings of $1.90 per diluted share a year ago.
Analysts on average had expected adjusted earnings of $1.96 per diluted share, according to financial markets data firm Refinitiv.
Barclays analyst John Aiken noted that the continued growth of the bank’s international division and the increase in the dividend were good news, as was the increase in the interest margin as rates rose. .
Scotiabank said its Canadian banking business earned net income attributable to equity holders of $1.18 billion in its latest quarter, up from $927 million in the same quarter a year. last, helped by higher revenues and a lower provision for credit losses, partly offset by higher non-interest expenses. expenses.
International banking operations brought in $605 million, compared to $420 million a year ago, as the bank saw a lower provision for credit losses, lower non-interest expenses and higher revenue , partially offset by the negative impact of currency translation.
The bank’s global wealth management arm earned $407 million, up from $372 million a year ago (up about 9%). The increase was driven by higher brokerage revenue, mutual fund fees and net interest income supported by strong loan and deposit growth, the bank said.
Assets under management of $326 billion decreased $3 billion or 1% due to market depreciation, partially offset by higher net sales, according to the shareholders’ report. Assets under administration of $591 billion increased $24 billion, or 4%, primarily due to higher net sales, partially offset by market depreciation.
Global banking and capital markets activities brought in $488 million, compared to $517 million in the same quarter last year.