Scotiabank misses profit on higher provisions, flags slow mortgage growth

(Reuters) - Bank of Nova Scotia, Canada’s third-biggest lender, on Tuesday missed analysts’ estimates for second-quarter profit and forecast low-single-digit growth in mortgages this year, citing a slow start to the domestic housing market.

FILE PHOTO: The Bank of Nova Scotia (Scotiabank) logo is seen outside of a branch in Ottawa, Ontario, Canada, February 14, 2019. REUTERS/Chris Wattie

Scotiabank’s quarterly profit miss, which was the third in a row, was due to a surge in non-interest expenses and provisions for bad loans that offset gains from its international banking unit.

Adjusted non-interest expenses rose 7.7% to about C$4 billion in the quarter from a year earlier, while its provisions for credit losses - the money set aside to cover bad loans - surged 35% to C$722 million ($535.9 million).

The jump in provisions came after Scotiabank’s recent acquisitions, which include Canadian insurer MD Financial Management and investment firm Jarislowsky Fraser.

“Scotia’s earnings were negatively affected by provisions related to acquisitions which, from our standpoint, generated the miss,” John Aiken, an analyst with Barclays, said in a note.

Provisions also rose at Scotiabank’s Canadian and international banking units, as it set aside more money to meet futures losses in its personal loan portfolio.

Provisions also jumped at Canada’s two biggest lenders, Royal Bank of Canada and Toronto-Dominion Bank, which reported results last week.

Canada’s once-hot housing market has softened since the start of last year, as tighter mortgage rules and interest rate hikes have curbed spending power of home buyers.

Adjusted net income of Scotiabank’s Canadian banking business unit grew about 4% in the quarter ended April 30, while net income from its relatively smaller international banking division surged about 20%.

Scotiabank, which has the biggest overseas presence among Canada’s major banks, has been focusing on the Latin American trade bloc comprising of Mexico, Peru, Chile and Colombia.

The bank’s markets revenue, which includes trading in bonds and equities, also showed an increase.

Trading revenue also rose at Canada’s biggest lender Royal Bank of Canada, while it was the only bright spot for Canadian Imperial Bank of Commerce.

Scotiabank reported adjusted net profit attributable to shareholders of C$2.08 billion, or C$1.70 per share, in the quarter, compared with C$2.06 billion, or C$1.71 per share, a year earlier. (

Analysts on average had expected a profit of C$1.74 per share, according to IBES data from Refinitiv.

Shares of Scotiabank were down 2.2% in morning trading, taking the share slump in the last one year to about 14%.

(GRAPHIC: Shares of Canadian banks fall from their peak in last 8 months -

Reporting by Bharath Manjesh in Bengaluru; Editing by James Emmanuel