Release Date: August 27, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Bank of Nova Scotia (BNS, Financial) reported adjusted earnings of $2.2 billion or $1.63 per share in Q3, demonstrating solid top-line revenue growth.
- Canadian Banking business delivered $1.1 billion of earnings in the quarter, up 6%, with pre-tax, pre-provision earnings growing 11% year over year.
- Global Wealth Management contributed $415 million this quarter, driven by strong performance in Canadian wealth business and double-digit growth from international wealth.
- The bank's CET1 capital ratio increased to 13.3%, reflecting a strong balance sheet with improved liquidity metrics.
- The investment in KeyCorp is expected to add greater than $0.25 to EPS in the first full year of ownership and approximately 45 basis points to Scotiabank's return on equity.
Negative Points
- Credit costs are at the high end of the previously communicated range due to sustained higher rates impacting retail portfolios.
- Net interest margin was down 3 basis points quarter over quarter, driven by lower margins in International Banking and Canadian Banking.
- Expenses grew 5% year over year, driven by higher personnel costs from inflationary adjustments and technology-related costs.
- International Banking PCLs were $589 million, translating to a PCL ratio of 139 basis points, indicating elevated credit costs.
- Colombia continues to lose money, reflecting the challenging market environment and the need for ongoing expense management and strategic repositioning.
Q & A Highlights
Q: Can you provide an outlook on net interest margins (NIM) given the expected rate cuts from the Bank of Canada?
A: Rajagopal Viswanathan, CFO: We expect modest NIM improvement in Q4 and more significant benefits in 2025 as rate cuts take full effect. The Canadian Banking NIM may decline slightly due to lower deposit margins, but asset repricing will help in the latter part of 2025. International Banking NIM should remain around current levels.
Q: Can you update us on the strategic priorities, particularly around improving the deposit franchise in Canada and the focus on the US market?
A: Scott Thomson, CEO: We've added over $28 billion in deposits in Canada, improving our loan-to-deposit ratio. We're seeing growth in day-to-day banking balances and primary client relationships. Travis Machen, CEO of Global Banking and Markets, added that the US market offers great opportunities, especially in fee-based businesses.
Q: What is the outlook for loan loss ratios in the International segment?
A: Philip Thomas, Chief Risk Officer: We are encouraged by stable delinquency rates and flat net write-offs in International Banking. We expect loan loss ratios to remain around current levels in Q4.
Q: How should we think about balance sheet growth for International Banking in 2025?
A: Francisco Aristeguieta, Group Head of International Banking: 2025 will be a transitional year with a focus on client primacy and balanced relationships. We expect a flattish balance sheet as we continue client de-selection and refocus our portfolio.
Q: Is there potential for performing allowance releases in Canadian retail PCLs if macroeconomic forecasts improve?
A: Philip Thomas, Chief Risk Officer: We are encouraged by the resilience of the Canadian consumer and stable delinquency rates. While one quarter is not a trend, we see stability in these portfolios moving forward.
Q: Can you provide more details on the KeyCorp investment and its strategic value?
A: Scott Thomson, CEO: The KeyCorp investment is financially attractive and offers long-term optionality. It allows us to dip our toe in the US market with low risk and cost, while focusing on our North American corridor strategy.
Q: What is the status of client de-selection in International Banking, and are there more revenue pressures ahead?
A: Francisco Aristeguieta, Group Head of International Banking: We are on track with client de-selection and focusing on profitability and returns. While we are not done, we are making progress and expect sustainable revenue growth.
Q: Has Scotia crossed an inflection point in domestic P&C, particularly in the mortgage business?
A: Aris Bogdaneris, Group Head of Canadian Banking: We have seen sequential mortgage growth and strong retention rates. We are focused on value over volume and expect continued growth into Q4.
Q: Can you provide an update on the plans for Colombia, given its continued losses?
A: Francisco Aristeguieta, Group Head of International Banking: Colombia remains a challenging market. We are focused on improving efficiency and performance, and will redeploy assets if necessary.
Q: What proportion of your business and government loan book is on the watch list?
A: Philip Thomas, Chief Risk Officer: We have very little on the watch list, mostly on the commercial side. We are disciplined and conservative in our approach, with no major concerns on the corporate side.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
