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WRAPUP 2-Scotiabank, BMO beat estimates after making lower bad-debt provisions, shares rise

(Adds share prices, analyst and BMO CEO comment, financial details)

TORONTO, Dec 1 (Reuters) - Bank of Nova Scotia and Bank of Montreal (BMO) beat analysts’ estimates for fourth-quarter profit on Tuesday as they set aside less capital than expected to cover potential loan losses from the COVID-19 pandemic.

Executives at both banks said on analyst calls that their current allowances - built up by conservatively taking large provisions, including on performing loans, over the past three quarters - are sufficient to cover impairments in fiscal 2021.

Canadian banks have braced for an increase in bad loans this year and next as the coronavirus outbreak weighs on household and business incomes, while oil prices that remain below pre-pandemic levels also raise concerns about higher energy sector defaults.

But both lenders put aside less capital than analysts had expected in the quarter to Oct. 31. Despite the deteriorating operating environment, impaired loans as a percentage of total loans at both Scotiabank and BMO stood at 0.8%, compared with 0.8% and 0.6%, respectively, a year ago. Those measures were largely flat from the previous quarter.

Scotiabank shares were up 2.5% at C$64.80 at midday on Tuesday in Toronto, on track for their highest close since March. BMO shares added 3.4% to C$96.54. The Toronto stock benchmark was up 0.7%.

Both lenders also reported drops in loan payment deferrals and low levels of delinquencies in those whose forbearance had expired - 1% at Scotiabank, and about 2% at BMO.

The declines signal a better outlook for future credit losses, Credit Suisse analyst Mike Rizvanovic wrote in notes.

BMO posted provisions for credit losses of C$432 million, versus estimates of C$712.7 million, Refinitiv IBES data showed. BMO, Canada’s No. 4 bank, also benefited from a surprising quarter-on-quarter increase in margins, as deposits grew while the gap between deposit and lending rates widened. It also got a boost from capital markets and wealth management units.

Scotiabank, Canada’s third-largest lender, reported loan loss provisions of C$1.13 billion ($871.04 million), compared with analysts’ expectations of C$1.44 billion.

Scotiabank reported adjusted net income attributable to shareholders of C$1.45 a share, versus estimates of C$1.22 a share.

BMO will also wind down its investment and corporate energy banking units outside Canada to focus on the oil and gas business at home, where it sees better opportunities, a spokesman said in a statement.

The closure will not have a material impact on revenue, Chief Executive Darryl White said on the company’s call. ($1 = 1.2974 Canadian dollars) (Reporting by Nichola Saminather in Toronto and Noor Zainab Hussain in Bengaluru Editing by Aditya Soni and Matthew Lewis)