Scotiabank, BMO Profits Gain as Businesses Ramp Up Borrowing

(Bloomberg) -- Bank of Nova Scotia and Bank of Montreal got an earnings boost with commercial clients ramping up their borrowing as economies emerged further from the pandemic.

Scotiabank increased fiscal first-quarter government and commercial loans 8.2% from a year earlier in its international division and 16% in its Canadian unit. At Bank of Montreal, business loans rose 9.9% in its Canadian banking unit and 9.1% in its U.S. division. Both banks' overall profit topped analysts' estimates.

Canada's banks had weathered the Covid-19 crisis with strong mortgage growth, helped by the country's hot housing market. That lending strength is now broadening to other categories as economies recover from the earlier phases of the pandemic and omicron-variant infections dissipate, prompting businesses and consumers to borrow more.

“It's reopening, lesser restrictions on activities and the ability to start converting the pent-up demand into real activity -- they're all sort of converging and giving us the opportunity to grow,” Bank of Montreal Chief Financial Officer Tayfun Tuzun said in an interview.

That helped Bank of Montreal's net income rise 45% to C$2.93 billion ($2.31 billion), or C$4.43 a share, in the three months through January. Excluding some items, profit was C$3.89 a share. Analysts estimated C$3.29, on average.

Bank of Montreal has been the top-performing major Canadian bank stock over the past year as it managed to control expenses and boost lending. Its success on those fronts are part of what has made its $16.3 billion agreement to buy BNP Paribas SA's Bank of the West unit palatable to investors and analysts.

The bank's common equity tier 1 ratio rose to 14.1% from 13.7% in the fourth quarter.

Bank of Montreal shares slipped 0.6% to C$143.84 at 1:17 p.m. in Toronto amid a broader decline in stocks, while Scotiabank declined 1% to C$90.94. Scotiabank shares have risen 1.5% this year and Bank of Montreal is up 5.6%, compared with a 3.2% gain for the S&P/TSX Commercial Banks Index.

International Revamp

For Scotiabank, net income rose 14% to C$2.74 billion, or C$2.14 a share. Excluding some items, profit was C$2.15 a share. Analysts estimated C$2.04, on average.

Chief Executive Officer Brian Porter has spent much of his eight-year tenure revamping the international unit by selling off small or underperforming operations and doubling down in larger, more promising markets. He has said investors would see the full earnings power of the bank this year.

That pledge got a boost last quarter as the international division benefited from growth in business-loan balances. Profit in the division rose 43% from a year earlier to C$630 million, helped by falling noninterest expenses.

“This quarter had strong loan growth, along with good fee-income growth,” Porter said in a statement.

Scotiabank on Monday announced a deal to acquire Grupo Said's remaining 16.8% stake in Scotiabank Chile, giving the Canadian bank nearly 100% ownership in its Chilean unit. Scotiabank will pay C$1.3 billion, with half the amount in cash and the rest in shares. The deal will add about C$35 million per quarter in profit and immediately boost earnings per share, Scotiabank said.