Scotiabank hikes dividend 11% as profit rises on retail gains, improved loan picture - The Globe and Mail

A Bank of Nova Scotia branch, in Toronto, on Feb. 11.Fred Lum/The Globe and Mail

Bank of Nova Scotia reported higher fourth-quarter profit and raised its dividend by 11 per cent as retail banking profit improved and delinquent loans remained low.

Canada’s third-largest bank is the first to report earnings for the fiscal quarter that ended Oct. 31, and launched a plan to buy back up to 2 per cent of its common shares – about 24 million shares in total – by the end of 2022.

The dividend hike and share buyback plan are the first increases to Scotiabank’s shareholder payouts in nearly two years, after Canada’s banking regulator recently lifted restrictions that had been imposed to help banks preserve capital during the COVID-19 pandemic.

In the fourth quarter, Scotiabank earned $2.6-billion, or $1.97 per share, compared with $1.9-billion, or $1.42 per share, in the same quarter a year earlier.

Adjusted to exclude certain items, the bank said it earned $2.10 per share. That was far above the consensus estimate of $1.90 per share among analysts, according to Refinitiv.

One-time items in the quarter included a $126-million restructuring charge that stems mostly from costs related to branch closures and job cuts in its international operations, which are mostly in Latin America and the Caribbean. The bank said the reductions in staff and branches were “driven by the accelerated customer adoption of digital channels and process automation.”

The bank also earmarked $62-million in “settlement and litigation provisions” in connection with its former metals business, which the bank shuttered after it became ensnared in legal and regulatory problems.

For the full fiscal year, Scotiabank’s revenue was nearly $7.7-billion, a 2-per-cent increase from the prior year.

“The Bank is well positioned to achieve its full earnings power in the upcoming year,” said chief executive officer Brian Porter, in a news release.

The core Canadian banking division generated $1.24-billion in profit in the quarter, up 59 per cent compared with a year earlier and 15 per cent from the third quarter. Income from fees and loan balances both increased, led by a 13-per-cent surge in residential mortgages and an 11-per-cent rise in business loans.

The bank’s international division, which has been slower to recover from the pandemic, reported profit of $607-million, up 82 per cent from a year ago. On an adjusted basis, international profit was up 10 per cent from the third quarter as loan balances increased by 3 per cent. But revenue was down 3 per cent year over year, and profit before taxes and loan loss provisions was 2 per cent lower.

Scotiabank’s provisions for credit losses – the funds banks set aside to cover loans that may go bad – amounted to $168-million in the quarter. The bank recovered $343-million in provisions that had previously been set aside in case loans that were still being repaid turned sour, as economic forecasts improved. But it also earmarked $511-million in provisions for loans that are impaired, most of it in the international banking arm.

Scotiabank’s common equity Tier 1 (CET1) ratio was 12.3 per cent, up 10 basis points from the prior quarter. (100 basis points equal one percentage point).

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Scotiabank hikes dividend 11% as profit rises on retail gains, improved loan picture - The Globe and Mail
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