Scotiabank reports profit of $2.31B, meets analyst expectations

The Bank of Nova Scotia reported its fourth-quarter profit edged up compared with the same quarter last year and is expecting a strong performance from its Canadian banking segment next year driven by higher contributions from business banking, credit cards and growth of Tangerine digital banking.

CEO Brian Porter says bank is 'downturn ready' but doesn't anticipate recession 'in the near term'

The Scotiabank building is shown in Toronto in a file photo. Earnings were up for Scotiabank in both its Canadian and international banking divisions. (Frank Gunn/The Canadian Press)

The Bank of Nova Scotia is expecting a strong performance from its Canadian banking segment next year driven by higher contributions from business banking, credit cards and growth of Tangerine digital banking.

The bank's domestic operations are forecast to contribute 30 to 40 per cent of all bank earnings in 2020, with international banking at 25 to 30 per cent, global banking and markets at 15 to 20 per cent and global wealth management at about 15 per cent.

"In Canada, economic activity remains solid in light of strong population growth driven by immigration, robust employment and wage growth, accommodative monetary policy, a stronger housing market and good levels of business and consumer confidence," CEO Brian Porter said Tuesday during a conference call to discuss fourth-quarter results.

"We continue to believe that a recession is unlikely here in Canada or in the U.S. in the near term."

The bank anticipates modest improvement in global growth in 2020 despite trade tensions between the U.S. and China. But it sees a slight slowing of growth in the U.S. as the waning impacts of the 2018 tax decreases and trade uncertainty weigh on the economy despite resilient consumer confidence.

Scotiabank says competition in the credit card market will intensify as Air Canada relaunches its Aeroplan loyalty program next spring.

The bank said it earned $2.31 billion for the three-month period ended Oct. 31 compared with a profit of $2.27 billion in the same quarter last year. The profit amounted to $1.73 per diluted share for the quarter, up from $1.71 a year ago.

Adjusted for acquisitions and divestitures, Scotiabank says it earned $1.82 per diluted share, up from $1.77 per diluted share last year.

The results matched analyst expectations, according to financial markets data firm Refinitiv.

Porter said the bank delivered improved fourth-quarter results to end a productive year for the bank.

"We made considerable strides in repositioning the bank as a stronger, more focused business while maintaining high degree of diversification to manage risk and optionality to fuel future growth," he told analysts.

Revenues up 4%

Over the past four years it simplified the bank's footprint, improved earnings quality and provided a path to higher capital ratios, which have reduced its risk profile by exiting higher risk and lower growth jurisdictions, Porter added.

"We consider the bank to be downturn ready. Our integration efforts were highly successful and are now complete. This will provide continued benefits to our customers and shareholders for years to come."

The overall increase in its fourth-quarter profit came as Scotiabank reported its Canadian banking operations earned $1.14 billion, up from nearly $1.12 billion in the same quarter last year. Revenues were up four per cent to $3.57 billion with loans growing five per cent, residential mortgages up five per cent, personal loans three per cent and credit cards six per cent. Business lending was up 11 per cent and deposits nine per cent.

Canadian Wealth Management adjusted earnings increased 15 per cent year-over-year.

Scotiabank's international banking division earned $823 million, up from $804 million as Chile earnings were up 25 per cent, while global banking and markets earned $405 million, down from $416 million.

Meanwhile, provisions for credit losses totalled $753 million, up $163 million or 28 per cent compared with a year ago. Scotiabank said the increase came due to higher provisions in both the retail and commercial portfolios in line with organic and acquisition-driven asset growth.

Scotiabank's common equity tier 1 ratio, a key measure of its financial health, was 11.1 per cent at Oct. 31, the same as a year ago.

The bank is changing the timing of its dividend decision but plans to maintain the payout ratio at 40 to 50 per cent.

Dividend hikes will be decided in the second quarter in line with other large North American banks instead of twice a year.