The Bank of Nova Scotia saw third-quarter profits fall compared with a year ago as it boosted its provisions for bad loans, even as the bank says it’s seeing some levelling out of the financial stress on Canadian consumers.
The bank reported Tuesday it had $1.05 billion set aside for bad loans in the quarter, up from $819 million a year earlier, but increasing only slightly from the $1.01 billion last quarter.
The amount of impaired loans, the kind the bank doesn’t reasonably expect full repayment on, actually fell for Canadian banking in the third quarter compared with the second, to $338 million from $399 million.
“I continue to be impressed by how resilient the Canadian consumer has been through this period, the trade-offs that they continue to make,” said Phil Thomas, chief risk officer at Scotiabank.
The trend is clearly coming through on variable-rate mortgages, he said, which have also started to benefit from the Bank of Canada starting to cut rates.
Scotia is also seeing a levelling-off in its auto loans, an area it’s been signalling as stressed for about a year, said Thomas.
“I was really encouraged this quarter to see we’re finally stable as it relates to net write offs in that portfolio,” he said.
“One quarter is not a trend, but I’m encouraged by what I’m seeing this quarter. And even as I look into next quarter, I see stability in these portfolios moving forward.”
Scotiabank has a much smaller credit card portfolio than some other Canadian banks, but its unsecured credit line trend seems to no longer be getting worse, Thomas said.
“I am super encouraged by the fact that this quarter, the levels of delinquency or any stress seem to be levelling off.”
While stabilizing, higher loan loss provisions did weigh on profits that amounted to $1.91 billion or $1.41 per diluted share for the quarter ended July 31 compared with a profit of $2.19 billion or $1.70 per diluted share a year ago.
On an adjusted basis, Scotiabank says it earned $1.63 per diluted share, down from an adjusted profit of $1.72 per diluted share in the same quarter last year.
Analysts on average had expected Scotiabank to earn an adjusted profit of $1.62 per share for the quarter, according to to LSEG Data & Analytics.
Revenue totalled $8.36 billion, up from $8.07 billion in the same quarter last year.
Earlier in August, Scotiabank announced it would pay about US$2.8 billion for a 14.9% stake in the U.S. bank KeyCorp in two stages.
Some analysts have worried about the bank possibly devoting lots of cash to buy even more of the bank, but chief executive Scott Thomson said Tuesday that the deal was about getting increased exposure to the U.S. at a good price.
“Our investment in KeyCorp represents a low cost low-risk approach to deploying capital in the U.S. banking market at a time when valuations are favourable and as the regulatory and competitive environment evolves.”