DBRS Ltd. has confirmed its ratings on Bank of Nova Scotia at AA and R-1 (high), citing the bank’s diversified earnings and strong cost-control culture.

The rating agency said Wednesday that Scotiabank’s diversified business strategy of generating at least 40% of its profits from Canadian banking, with the balance split between international banking and Scotia Capital, “is delivering steady earnings, even in turbulent market environments as witnessed over the last three years.”

DBRS says it views the firm’s international banking segment as more risky, with its investments in the Caribbean, Central America, South America and Asia; areas that have inherently higher risk profiles than developed markets, resulting in additional political, economic, currency and operational risks. That said, it notes that the geographic diversification and the bank’s long-standing experience in developing markets somewhat tempers these additional risks.

In the years ahead, DBRS will be monitoring the bank’s earnings mix to see whether it becomes materially riskier in the medium term. It notes that the bank has resumed its international growth-by-acquisition strategy, increasingly focusing on Asia.

So far, it notes, domestic acquisitions and organic growth in wealth management have helped maintain the relative balance between the bank’s three segments. And, in the first half of 2010, a very strong performance from Scotia Capital overshadowed the contribution from international operations, it notes, with domestic banking contributing 43% of earnings, 32% coming from Scotia Capital, and 25% from the international operations.

Additionally, DBRS says that Scotiabank’s disciplined cost culture is a competitive advantage relative to its Canadian banking peers, and a contributing factor to earnings growth. “Over the last 10 years, except for one, Scotiabank has had the lowest expense ratio compared with the other largest five Canadian banks,” it notes.

And, while it is on the low side in terms of its capital position, DBRS says that the bank’s capital levels provide it with flexibility to manage its growth strategy.

IE