Bank of Nova Scotia (Scotiabank) launched Canadian banks’ Q4 results reports on November 30 with some better-than-expected profits pushed by lower provisions and that lifted its dividend by 11% with executives saying that the bank was comfortable with the current allowances despite the new coronavirus variant.
Canada’s third-biggest lender introduced its first dividend hike in nine quarters, of C$1 per share, becoming the first major bank to do that after the lifting of pandemic-related restrictions by the nation’s financial regulator in November. Scotiabank also plans to buy back 24 million shares, or nearly 2% of its outstanding shares, as explained by the bank.
But shares lost 0.6% of their value to trade at C$80.92 on November 3o when compared with a 0.5% drop in the benchmark, as earnings excluded the effect of taxes and provisions, mainly in the international business arena, disappointed.
The wider market was weighed down heavily after a warning from Moderna’s chief executive warning about the effectiveness of the COVID-19 shots against the Omicron variant. Scotiabank took provisions of around C$168 million ($131.56 million), down from C$1.1 billion 12 months ago. Apart from the impact of provisions and taxes, this bank posted an adjusted profit of nearly a billion, up 4% from the same period a year ago.
For the investors seeking Canadian banks that show growth outside the core mortgages, Scotia was majorly disappointed. While mortgage lending rose significantly, and year-over-year, credit card, personal lending, and business lending growth were recorded, recovery remained sluggish and its net interest margin dropped.
Canadian banks and investors have been hoping for an enhancement in non-mortgage lending, as the earnings beats over the past quarters have been underpinned by home loans and the release of loan-loss reserves set aside in 2021.
Scotiabank’s average non-mortgage loan expanded by 1.5% from the previous quarter in Canada and 2.8% in the international unit, when compared with a 4.9% increase in the Canadian home loans and 3.2% overseas. The Canadian mortgage growth is anticipated to slow in fiscal 2022 as the central bank increases rates, as highlighted by executives on an analyst call.
Increased fees in Canadian banking and wealth management assisted in offsetting weakness in the capital markets unit. Excluded from the adjusted profit was a pre-tax restructuring charge of C$126 million in the international banking market to reduce employees and branches. That is set to be recouped via expense savings in the 2022 fiscal year.
While the net interest income in Canada surged by 7% as a result of stronger lending, the margins fell even as the loan growth remained skewed to residential mortgages that have lower rates. The loan mix also weighed on margins in the international business of the bank despite policy rate hikes in some of the Latin American nations.
The bank now anticipates recording a sequential margin expansion in 2022, mainly in the international business space. Adjusted profit increased to C$2.10 per share, in the three months that ended on October 31, 2021, compared with C$1.45 a year earlier and analysts’ average estimate of C$1.90.