Bank of Nova Scotia missed estimates after setting aside more money than expected for bad credit as tariffs hit its Canadian and Mexican operations.
The Toronto-based lender earned C$1.52 per share on an adjusted basis in its fiscal second quarter, according to a statement Tuesday, falling short of the C$1.56 average estimate of analysts in a Bloomberg survey. Provisions for credit losses totaled C$1.4 billion ($1.02 billion) for the three months through April, more than the C$1.34 billion analysts had forecast.
With Canada's economy weakening and possibly in the early stages of a recession, the country's big banks are preparing for potential credit defaults by bulking up on reserves — primarily on loans that are still in good standing. Scotiabank's domestic banking unit saw earnings decline by 31% from a year earlier, mostly due to a large increase in provisions for credit losses.
"This quarter we increased our performing allowances to reflect the impact of an uncertain macroeconomic outlook," Chief Executive Officer Scott Thomson said in the statement.
Toronto-Dominion Bank, the first of Canada's big lenders
At Scotiabank, provisions for impaired loans were also down in the quarter. But it set aside C$346 million for performing loans, up from C$98 million in the first quarter. The bank attributed the "substantial" increase in such provisions to "the impact of a significant deterioration in the macroeconomic outlook indicators, in the U.S., Canada and Mexico."
The lender's operations in other Latin American countries such as Peru and Chile have been less affected by U.S. trade policy, but those countries are still at risk from the global economic slowdown, the company said.
Scotiabank's results were "solid" apart from the performing-loan provisions, Jefferies Financial Group analyst John Aiken wrote in a note to clients. The firm saw revenue growth in its international division and capital levels increased, allowing Scotiabank to hike its dividend for the first time in two years.
"While there are still some headwinds to underlying growth, we believe that this is a result of the operating environment and not necessarily Scotia-specific," Aiken said. "Consequently, as investors look past the provisions on performing loans, we believe that the results should be viewed quite favorably."
Scotiabank on Tuesday increased its quarterly dividend by 4 Canadian cents to C$1.10 a share and also said it plans to seek regulatory approval to buy back as many as 20 million shares, or 1.6% of its stock.
Under Thomson, who became CEO in 2023, Scotiabank has pushed to increase its share of the domestic retail-banking and wealth-management markets. It's also shifted capital away from underperforming operations in Latin America to Canada, the U.S. and Mexico,
