Bank of Nova Scotia beat estimates as it benefited from lower funding costs after the country’s central bank cut interest rates by 200 basis points since last June, even as it set aside more money than expected for possibly bad loans.
The Toronto-based lender earned $1.76 per share on an adjusted basis in its fiscal first quarter, according to a statement Tuesday, more than the $1.65 average estimate of analysts in a Bloomberg survey. Net interest income — the difference between what a bank earns on loans and pays out on deposits — totaled $5.17 billion (US$3.63 billion) for the three months through January, up 8.4% from a year earlier.
The Bank of Canada brought its policy rate down to 3% over the span of less than eight months, and Scotiabank is the Canadian lender that benefits the most from lower rates due to its higher cost of funding. The rate cuts are expected to be a major driver in the bank’s earnings growth this year.
Still, Bank of Nova Scotia’s provisions for credit losses totaled $1.16 billion, more than the $1.09 billion analysts had forecast. President Donald Trump’s administration has generated significant uncertainty surrounding the fate of US trade with Canada as well as Mexico, where Scotiabank also has a significant operation.
Scotiabank has recently made several strategic moves aimed at redirecting its capital from Latin America to Canada and the US. It completed its acquisition of a 14.9% stake in Cleveland-based KeyCorp late last year, and announced plans in early January to transfer its operations in Colombia, Costa Rica and Panama to Banco Davivienda SA of Colombia.
The bank incurred an after-tax impairment loss of $1.36 billion on the transfer of those operations in the first quarter, it said Tuesday, the main reason its reported net income fell 55% from a year earlier to $993 million.
Scotiabank also said last month it was changing how it discloses segmented results for its business lines — primarily how it allocates the cost of funding across each unit. The bank will now assign almost all of the liquidity costs that were previously recorded in the corporate division to the relevant operating divisions, such as retail banking and capital markets.
The bank restated its results for the previous two years, with the new methodology leading to changes in its business-unit numbers but not its top-level results.
Christine Dobby, Bloomberg News
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