Bank of Nova Scotia Canada’s U.S. business is benefiting from strong loan growth, which is partly offsetting the recent sluggishness in its capital markets business, which is weighing on earnings.
Between May and July, the Toronto-based bank saw a 22% increase in loan balances compared to the same period a year earlier, with the largest contribution coming from the United States.
“You’ve seen continued strong loan growth in our target markets like the U.S. and Canada,” said Jake Lawrence, group leader and chief executive of Scotiabank’s World Banking and Markets division, on Tuesday. during an earnings conference call.
Still, profit from Scotiabank’s Global Banking and Markets division fell 26% to US$291 million.
The bank’s debt capital markets issuances fell more than 60% in the U.S. and Canada, while equity capital markets issuances fell more than 80% in each of the two countries .
Scotiabank, the first of Canada’s Big Five banks to report third quarter results, operates a wealth management business in the United States, in addition to corporate and institutional banking. Its retail banking footprint extends to Canada and several Latin American countries.
Scotiabank’s U.S. operations reported net income in U.S. dollars of $107.3 million, down from $147.4 million in the same period last year. While net interest income increased, non-interest income decreased and the provision for credit losses increased.
Since late July, the bank’s capital markets activities have begun to rebound, according to company executives. “There are signs of a rebound,” Lawrence told analysts, “in these key markets in Canada and the United States.”
The Canadian bank, which holds $997 billion in U.S. dollar assets, reported total quarterly net profit of $2 billion, up 2% from the same period last year.
During the quarter, Scotiabank’s net interest margin fell one basis point to 2.22%, which company executives attributed in part to trends in countries like Peru, Colombia and Chile, where deposits grew faster than loans. They pointed to the steep interest rate hikes by the central banks of these countries in an effort to fight inflation.
Over the past eight months, two of Scotiabank’s major competitors in Canada have struck deals to significantly expand their presence in the United States.
In December, the Bank of Montreal said it was planning a $16.3 billion acquisition of the West Bank. And in February, the Toronto-Dominion Bank agreed to purchase First Horizon Corp. for $13.4 billion. Both agreements are still pending regulatory approval.
Scotiabank executives said Tuesday their strategy is to grow organically, while being opportunistic about inorganic growth and also returning capital to shareholders.
“Our priority remains to deploy capital to support organic growth initiatives in each line of business while prudently managing capital in the face of a less certain economic outlook,” Chief Financial Officer Raj Viswanathan told analysts.
Royal Bank of Canada is due to release its quarterly results on Wednesday, followed by TD Bank and Canadian Imperial Bank of Commerce on Thursday, and BMO on August 30.