(Toronto) Turbulent financial markets weighed on Scotiabank’s third-quarter results, but the bank saw earnings rise on higher interest income from continued loan growth.
Updated yesterday at 1:03 p.m.
On Tuesday, it was the first of the six major Canadian banks to publish its financial results, posting net profit of 2.59 billion for the quarter ending July 31, against 2.54 billion in the same quarter last year. Its Canadian banking division reports 14% loan growth and its international banking division reports loan growth of 12%.
The increase in lending came as the financial health of businesses and consumers showed continued strength, Scotiabank President and Chief Executive Brian Porter said on a call with analysts on Tuesday.
“The macroeconomic backdrop in our key geographies remains positive as economies begin to stabilize following a unique confluence of events. In Canada, we view the strength of the labor market as an important counterweight to the impact of inflation on consumer confidence,” he said.
The bank, however, increased its provisions for credit losses by 8%, to 412 million, as central banks continued to raise rates in a delicate act aimed at controlling inflation without plunging economies into recession.
“We have taken appropriate steps to ensure we are prudently provisioned in light of a less certain economic outlook,” Porter added.
The slight increase in provisions for comprehensive losses hides larger fluctuations, with the provision for performing loans amounting to 23 million, compared to a net reversal of 461 million last year, the variation being attributed to less favorable macroeconomic forecasts. The provision for bad loans was 389 million, compared to 841 million last year, due to a drop in formations in most markets.
Economic uncertainty and higher borrowing rates also made many homebuyers hesitant, which slowed Scotiabank’s mortgage growth, up just 2% from the previous quarter.
The bank, however, stressed how strong consumer finances remain despite inflationary pressures, with average deposits still up 14% from pre-pandemic levels, and retail delinquency rates at about half of pre-pandemic ratio.
Scotiabank said it also expects to attract more customers through its expanded Scene points rewards program to which it has added partner grocery stores and pharmacies. The bank began rolling out the new program last week in Atlantic Canada and will roll it out across the country in the coming months.
While lending increased further in the quarter, the Global Wealth Management and Global Banking & Markets divisions saw revenue decline, 14% and 26% respectively, due to lower underwriting activity, corporates having raised less money. The bank also saw a drop in trading activity as investors retreated in a declining market.
“Robust corporate lending activity was offset by an extremely quiet period for capital markets issuance and challenging trading markets,” Porter said.
Lower activity in both sectors pushed Scotiabank’s results slightly below analysts’ expectations, as some expected increased market volatility to boost trading.
The bank reported adjusted earnings of $2.10 per share, down from $2.01 per share a year ago, but below analysts’ expectations of $2.11 per share, according to the market data firm. Financial Refinitiv.
Revenue of 7.80 billion, against 7.76 billion, was also below expectations of 8.1 billion.
“Due to weak financial markets, mutual fund, brokerage and wealth management revenues declined during the period, as we had expected,” said the Edward Jones analyst. , James Shanahan, in a note. However, increased market volatility failed to bolster trading revenue, and underwriting activity remains lackluster. »
Bank earnings announcements continue throughout the week with Royal Bank and National Bank on Wednesday, CIBC and TD Bank on Thursday and Bank of Montreal on August 30.