Bank of Nova Scotia’s expanding international footprint fueled larger second-quarter profits as Canada’s third-largest lender continues to grab share in key Latin American markets.
Strong loan and deposit growth helped push profit from international operations 14 per cent higher to $675-million in the three months ended April 30, but the bank also benefited from adjustments to align the reporting periods of certain units.
Scotiabank has focused its international footprint on four key countries – Mexico, Peru, Chile and Colombia, which it collectively calls the “Pacific Alliance” – and has been deploying significant capital to build its presence. This fiscal year alone, the bank has struck a US$2.2-billion deal to buy control of a Chilean bank and made acquisitions in Peru and Colombia, which should give it added muscle once the deals close later this year. Latin America remains a key plank in Scotiabank’s strategy, offering the potential for more rapid growth than the bank expects from its more mature Canadian banking arm.
“We have lots of levers to continue to grow in these markets, and we do see Pacific Alliance as the stronger growth area for Scotiabank going forward,” said Sean McGuckin, Scotiabank’s chief financial officer.
Scotiabank reported a 12-per-cent common equity Tier 1 (CET1) capital ratio – the highest among its peers. But Mr. McGuckin expects that ratio, which is an important measure of a bank’s health, to settle around 11 per cent once pending deals have closed.
For the quarter that ended April 30, Scotiabank reported profit of nearly $2.2-billion, or $1.70 a share, compared with $2.06-billion, or $1.62 share, in the same quarter last year.
Adjusted for certain items, the bank earned $1.71 per share, four cents ahead of the consensus estimate among analysts, according to Bloomberg LP.
Revenue was nearly $7.1-billion, up from about $6.6-billion a year earlier. And the bank held its quarterly dividend steady at 82 cents a share.
The core Canadian banking division grew 5 per cent to $1-billion, compared with a year ago, although the bank said underlying growth was closer to 7 per cent after adjusting for one-time items. The division benefited from higher margins amid rising interest rates and lower-than-expected loan losses.
National Bank Financial Inc. analyst Gabriel Dechaine assessed Scotiabank’s second-quarter results as “solid but unspectacular,” noting that growth in Canadian banking operations was “low relative to peers.”
Canadian banking head James O’Sullivan acknowledged that expenses “were elevated” in the second quarter, and the bank is continuing its efforts to bring costs down and smooth out variations from quarter to quarter. The bank plans to continue automating processes as customers do more banking digitally, slash its technology costs through the use of cloud computing and use its global reach to gain buying power on everything from technology to office materials.
?[There are] lots of different levers for us to continue to pull in terms of driving a more productive bank,” Mr. McGuckin said.
The bank also reported solid mortgage growth of 6 per cent, compared with a year earlier. Concerns about slowing mortgage growth have dogged Canada’s big banks of late, as new regulations requiring tougher stress testing on some home loans begin to take a bite out of some customers’ capacity to borrow. But Mr. McGuckin noted that even if Scotiabank’s mortgage growth slows by one percentage point, the bank loses only $15-million in profit for the year, or one cent a share.
“It really doesn’t move the dial that much,” he said.
Profit from the bank’s capital markets arm fell 14 per cent year-over-year, leaving a rare blemish on an otherwise smooth period. But that division “had some elevated gains last year, so the [comparison] was a little bit tougher this quarter,” Mr. McGuckin said.
Scotiabank’s share price dipped after the bank released its results, falling 3.5 per cent by midday on the Toronto Stock Exchange, on an otherwise tough day for global markets.