Scotiabank says it expects to see continued loan pressure and political uncertainty in the months ahead as it reported profits that were up from a year ago but below analyst expectations.
The bank kicked off a week of bank earnings Tuesday as it reported a fourth-quarter profit of $1.69 billion, up from $1.35 billion in the same period last year, as it set aside a smaller amount for bad loans compared with a year ago.
Profits were hit by taxes and a writedown of its holding in a Chinese bank, while its Canadian operations were affected by the softening economy, said chief executive Scott Thomson.
“The realities of a slowing economy and the impact of peak interest rates made for a challenging operating environment,” he said on a conference call with analysts.
Looking ahead, Thomson said new governments, such as those in the U.S. and Mexico, bring uncertainty on trade policy and relations but that he’s optimistic on the outcome.
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“We are closely monitoring policy actions from the new administration in Mexico as well as the incoming U.S. administration,” said Thomson.
“We believe policy will ultimately support a co-operative environment that encourages capital investment and continued regional growth.”
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The bank expects loan pressure, especially on credit cards and auto loans, to stay elevated in the first half of 2025 before easing in the second half as interest rates continue to come down.
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“We anticipate additional easing through the first half of the year, which we expect will be stimulative to activity in the domestic housing and mortgage markets and buoy consumer and business confidence,” Thomson said.
While banks are expected to still see rising provisions for potentially bad loans, Scotiabank set aside $1.03 billion in its fourth quarter, down from $1.26 billion a year ago. The drop was because loans of less concern eased, even as impaired loans, meaning ones the bank doesn’t expect to get paid back, rose.
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Revenue for the quarter totalled $8.53 billion, up from $8.27 billion in the bank’s fourth quarter last year.
Profits amounted to $1.22 per diluted share for the quarter ended Oct. 31, up from 99 cents in the same quarter a year ago.
Earnings rose even as the quarter saw Scotiabank take a $343 million charge related to its writedown of its investment in Bank of Xi’an Co. Ltd. in China related to the country’s weakened economy.
On an adjusted basis, Scotiabank says it earned $1.57 per diluted share in its latest quarter, up from an adjusted profit of $1.23 per diluted share a year ago.
The average analyst estimate had been for an adjusted profit of $1.60 per share, according to data provided by LSEG Data & Analytics.
Jeffries analyst John Aiken said the miss was largely from a higher-than-anticipated tax rate, while the bank also saw revenue headwinds and mixed performance on efficiency.
The bank is the first of the Big Six to report its fourth-quarter results this week. Royal Bank of Canada and National Bank of Canada report Wednesday, while Toronto-Dominion Bank, BMO Financial Group and CIBC report Thursday morning.
Scotiabank said its Canadian banking operations amounted to $1.06 billion for the quarter, up from $793 million in the same quarter last year, due primarily to lower provisions for credit losses and higher revenue, partly offset by higher non-interest expenses.
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Scotiabank’s international banking operations earned a profit of $628 million attributable to equity holders of the bank, up from $548 million a year earlier, while the bank’s global wealth management business earned $420 million attributable to equity holders, up from $327 million a year ago.
The bank’s global banking and markets business earned $403 million, down from $414 million in the same quarter last year.
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