Scotiabank’s Q2 net income up almost 4%, helped by international banking

Scotiabank reported a nearly four cent jump in profit in the latest quarter, beating market expectations with a boost from its international operations in Latin America.

The bank said Tuesday it earned $2.04 billion in net income attributable to common shareholders for its second quarter, up 3.9% from $1.97 billion a year ago.

The earnings amounted to $1.70 per diluted share, compared with $1.62 during the three-month period ended April 30 a year earlier.

On an adjusted basis, the profit amounted to $1.71 per diluted share, compared with analysts’ expected earnings per share of $1.67, according to Thomson Reuters Eikon.

Scotiabank chief executive Brian Porter said the bank’s diversified business model continued to contribute to its overall performance.

The bank maintained its dividend of 82 cents per share for the quarter ending July 31, 2018.

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The lender’s Canadian banking division saw a 5% increase in net income attributable equity holders to $1.02 billion, but its international banking arm saw a 14% increase to $675 million.

Porter said its earnings growth outside of Canada was driven by momentum in the Pacific Alliance countries of Mexico, Chile, Colombia and Peru.

“International banking reported strong results with another quarter of double-digit earnings growth,” said Porter in a statement.

“This was driven by continued momentum in the Pacific Alliance region, better credit performance and productivity gains. Recently announced acquisitions in Chile, Colombia and Peru, all expected to close in the second half of this fiscal year, will further grow our customer base and improve our presence in the Pacific Alliance region.”

Scotiabank’s global banking and markets division, however, saw net income attributable to equity holders drop by 14% compared with the previous year to $447 million. The drop was due to “lower non-interest income, due primarily to high levels of client trading activity in equities last year, and the negative impact of foreign currency translation.”

The bank’s provisions for credit losses, or money set aside for bad loans, was $534 million, down $53 million or 9% from the second quarter of 2017.

The bank’s common equity tier 1 ratio, a key measure of the bank’s financial health, was 12%, up from 11.3% a year ago and 11.2% in the previous quarter.

Scotiabank was the fourth of Canada’s Big Five lenders to beat market expectations for their latest quarter with year-over-year profit increases, despite concerns about the impact of a cooling housing market on mortgage lending.

Mortgage originations, or new mortgages issued, by Scotiabank during the latest quarter totalled $8.9 billion, down slightly from $9 billion in the same quarter one year ago.

Gabriel Dechaine, an analyst with National Bank of Canada Financial Markets, called it a “solid but unspectacular quarter” and noted that Scotiabank’s adjusted growth in its Canadian banking division of 7% is “low relative to peers.”

“Outperformance was driven by a re-alignment of reporting periods that added an extra month contribution from BNS Chile and the Canadian insurance business,” as well as lower provisions which were offset by a higher tax rate, said Dechaine in a research note to clients.

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