Dominion Bond Rating Service has confirmed its ratings of Bank of Nova Scotia, noting its trends are stable.

A key factor in DBRS’ current ratings is the bank’s level of diversification, with balanced contributions from Scotia Capital, its domestic consumer and commercial banking service, and the bank’s significant international operations; this level of diversification supported the bank through numerous difficult situations in recent years, it says. “Recent earnings have been strong in all divisions, with record earnings in 2004 driven primarily by very low loan loss provisions. The solid earnings continued into the first half of 2005,” DBRS observes.

“Scotiabank’s financial risk profile is one of the strongest of its peer group as evidenced by solid capital ratios, high-quality capital, consistently strong internal capital generation, a strong core deposit base, and reasonable market risk exposure levels,” the rating agency adds. “Scotiabank is a clear cost leader among its Canadian banking competitors. While diversification is important, both Scotia Capital and the international banking operations can have volatile returns, hence domestic banking remains the key to stability.”

DBRS adds, Scotia’s international operations have higher growth potential, although these operations expose the bank to additional economic, currency, and operational risks. “Other challenges include a higher reliance on net interest income than the bank’s peers; domestic margin pressure is expected to continue due to competitive conditions, despite some possible reprieve in 2005 if interest rates remain modestly higher,” it says.