Scotiabank Profit Gets a Boost as International Recovery Gains Steam

(Bloomberg) -- The turnaround at Bank of Nova Scotia's Latin America-focused international division is picking up steam. 

The unit's adjusted profit rose 74% from a year earlier to C$614 million ($480 million) in the fiscal fourth quarter, Toronto-based Scotiabank said Tuesday. Overall profit in the three months through Oct. 31 topped analysts' estimates.  

Scotiabank's international division is benefiting from the global boom in commodities prices, which is helping spur growth in business loans in the Latin American markets where the unit operates. While consumer lending in the region remains sluggish, Scotiabank is posting gains in mortgages there and has kept a tight lid on the unit's costs, reducing non-interest expenses 3.1% from the previous quarter.

“International banking is showing good signs of recovery,” Scott Chan, an analyst at Canaccord Genuity Group Inc., said in an interview. “They're getting a nice commodities tailwind that benefits a lot of the countries they're in.”

Total loans and acceptances for the business were up 2.2% from the third quarter, the first quarter-over-quarter gain since the third quarter of fiscal 2020. The unit should get a further boost next year as interest rate increases in those markets widen lending margins, Chan said.

The bank -- which, along with Canada's other large lenders, had been temporarily prohibited by regulators from increasing its dividend or buying back shares -- raised its quarterly payout by 11% to C$1 a share and announced a plan to repurchase 24 million in shares. That works out to about 2% of the bank's outstanding stock, and at current share prices, would cost about C$1.95 billion.

Scotiabank shares fell 0.7% to C$80.88 at 9:37 a.m. in Toronto, compared with a 1% decline for the S&P/TSX Commercial Banks Index. The bank's shares have advanced 18% this year, compared with a 27% gain for the banks index.

Scotiabank is also benefiting from Canada's hot housing market, which has spurred a boom in mortgage lending. The bank's domestic division reported an average residential mortgage balance of C$255.2 billion for the fourth quarter. That's up 4.9% from the third quarter and 13% from a year earlier.

The gain in mortgage lending was driven by stronger-than-expected originations and retention, which has been a focus for the bank in recent quarters, Dan Rees, head of the Canadian banking business, said on a call discussing earnings. That growth may begin to slow next year as the housing market cools, he said. 

“Should rates rise sooner in the year, as I think many of us are expecting, we expect that to soften demand,” Rees said.

Also in the earnings statement:

• Net income rose 35% to C$2.56 billion, or C$1.97 a share. Excluding some items, profit was C$2.10 a share. Analysts estimated C$1.91 a share, on average.
• The bank took C$168 million in provisions for credit losses. Analysts estimated C$559.6 million in set-asides, on average.
• Profit in Scotia's global banking and markets unit rose 9.1% from a year earlier to C$502 million.

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