Gains driven by strength in its international and Canadian banking businesses
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The Bank of Nova Scotia is hiking its dividend by more than 10 per cent and announced share buybacks Tuesday after reporting strong fourth quarter results to kick off bank earnings season.
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Scotiabank said it would be raising its quarterly dividend by 10 cents per common share to $1 after the Office of the Superintendent of Financial Institutions (OSFI) lifted restrictions on dividend hikes earlier this month. The first dividend pay-out will come on Jan. 27.
The bank also reported $2.56 billion in net income in the three months ending Oct. 31, compared to $1.94 billion from the same period last year, benefitting from lower credit loss provisions due to an improving credit quality picture and optimistic economic outlook. Earnings per share rose to $1.97, beating analyst expectations of $1.90 and jumping from $1.42 in the same period last year.
Against an improving macroeconomic backdrop, the company saw gains in international banking, where earnings came in at $528 million compared to $263 million from a year ago, particularly bolstered by operations in countries such as Chile and Colombia. In the release, the bank stated its provision for credit losses shrank to $168 million from $380 million in the previous quarter reported in July.
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“We ended the year with strong fourth quarter earnings and exceeded our medium-term financial targets in fiscal 2021. Our diversified business model demonstrated its resilience through the pandemic, and the Bank is well positioned to achieve its full earnings power in the upcoming year,” said Scotiabank president and chief executive Brian Porter. “As we close out 2021, it is clear that our sharpened footprint and our significant investments in our digital capabilities have positioned the Bank for a very bright future.”
Leading up to the announcement, analysts such as Gabriel Dechaine from National Bank of Canada predicted a “dividend growth tsunami” from the banks, expecting a 10 per cent increase from Scotiabank.
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On the conference call, Porter called 2021 a “transition year” that brought the company’s business lines back to pre-pandemic levels — or exceeded them. Porter pointed to the bank’s growing digital business, which expanded during the pandemic as brick-and-mortar banking locations closed during lockdown, and international growth.
Scotiabank’s executive team is expecting these results to carry over into 2022, benefitting from loan growth, the economic recovery and further developments in the company’s digital banking segment.
“In 2022, all bank revenue is expected to benefit from good mid-single-digit loan growth, modest margin expansion and higher non-interest income benefiting from improving economic conditions,” said Raj Viswanathan, Scotiabank’s group head and chief financial officer.
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Phil Thomas, chief risk officer at Scotiabank, said over the conference call that he expected provisions for credit losses would moderate moving forward.
“As recoveries continued to moderate next year, we believe 2023 will reflect more normalized PCL ratios for the bank … reflecting the improved credit quality and business mix shifts as we emerge stronger from a pandemic,” said Thomas.
The hot housing market in which mortgage growth is exceeding income growth, could bring risks to lenders, but Dan Rees, Scotiabank’s group head for Canadian banking, said the company is pleased with mortgage performance. Rees added that as interest rates rise and soften demand for housing, mortgage growth should begin to slow.
Porter anticipates further earnings gains through loan growth and capital markets activity heading into 2022.
“We fully expect the strong momentum in our Canadian banking business to continue aided by strong loan growth and a higher interest rate environment,” Porter said. “The recovery in our in international banking business is evident. This will be further supported by interest rate increases continued asset growth as well as a strong economic rebound.”
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Bank of Nova Scotia hikes dividend as profit beats expectations - Financial Post
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