Bank of Nova Scotia BNS-T +0.07%increase reported lower second-quarter profit that missed analysts’ estimates as the lender set aside more provisions for loan defaults as the U.S. trade war puts pressure on consumers and businesses.
Scotiabank earned $2.03-billion, or $1.48 per share, in the three months that ended April 30. That compared with $2.09-billion, or $1.57 per share, in the same quarter last year.
Adjusted to exclude certain items, the bank said it earned $1.52 per share. That fell below the $1.57 per share analysts expected, according to S&P Capital IQ.
In the quarter, Scotiabank set aside $1.4-billion in provisions for credit losses – the funds banks set aside to cover loans that may default. That was higher than analysts anticipated, and included $346-million against loans that are still being repaid, based on models that use economic forecasting to predict future losses.
In the same quarter last year, Scotiabank posted $1-billion in provisions.
“Amidst the continuously-evolving economic outlook, we are focused on what we can control and are executing on our strategic plan while continuing to deliver positive operating leverage,” Scotiabank CEO Scott Thomson said in a statement. “This quarter we increased our performing allowances to reflect the impact of an uncertain macroeconomic outlook.”
Analysts expected Canada’s banks to continue grappling with higher loan loss reserves and lower borrowing activity as U.S. President Donald Trump’s trade war threatens a deeper economic downturn.
The bank raised its quarterly dividend by 4 cents to $1.10 per share. Scotiabank also said it plans to buy back 20 million of its shares.
Scotiabank is the second major Canadian bank to report earnings for the fiscal second quarter. Last week, Toronto-Dominion Bank posted results that beat analyst estimates. Bank of Montreal and National Bank of Canada report Wednesday, and Royal Bank of Canada and Canadian Imperial Bank of Commerce release results on Thursday.
Total revenue rose 9 per cent in the quarter to $9.08-billion. But expenses increased 8 per cent to $5.11-billion, which the bank said was driven by higher technology and professional fees, personnel costs, and performance and stock-based compensation.
Profit from Canadian banking dropped 31 per cent to $613-million as the bank set aside more provisions for performing loans. Loan balances were up 4 per cent year over year.
Profit from the bank’s international division was up 6 per cent, at $676-million, driven by higher non-interest income, lower expenses, provision for credit losses and income taxes.
Capital markets profit rose 10 per cent to $413-million on a boost in trading revenue. The global wealth management division generated $399-million, up 17 per cent.
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