Scotiabank profit dips as it prepares for potential turbulence ahead

Jamie Murray, president of Murray Wealth Group, shares his analysis of the earnings results from the Bank of Nova Scotia missing on Q2 EPS expectation.

Cautious borrowers and a worsening economic outlook pushed Scotiabank earnings slightly down in the second quarter from last year as the bank put aside more money for potentially bad loans ahead.

The bank reported a net income of $2.03 billion, compared with $2.09 billion a year earlier, as its provisions for credit losses rose by $391 million from last year to $1.4 billion.

“While we have not seen a meaningful deterioration in credit, our base-case forward looking indicators have worsened,” said chief executive Scott Thomson on an earnings call Tuesday.

He said deposits are rising and mortgage growth is slowing as consumers become more cautious, while capital markets activity slowed in April as tariff uncertainty escalated.

But Thomson said he was optimistic about the Canadian election being over, granting some political stability that will help the country focus on growth and productivity issues.

“While weaker consumer and business confidence is impacting near-term loan growth and capital markets activity, the future looks bright for Canada.”

In a show of confidence in the bank’s own finances, Scotiabank boosted its dividend to $1.10 per share, up from $1.06 — its first raise in two years.

With a common equity capital ratio of 13.2 per cent, well above the mandated minimum of 11.5 per cent, the bank has also launched a buyback program of up to 20 million shares to help boost its stock price and return cash to shareholders.

The increased payment to shareholders came as Scotiabank says its profit amounted to $1.48 per diluted share for the quarter ended April 30 compared with a profit of $1.57 per diluted share in the same quarter last year.

Revenue totalled $9.08 billion, up from $8.35 billion.

On an adjusted basis, Scotiabank says it earned $1.52 per diluted share, down from an adjusted profit of $1.58 per diluted share a year earlier.

Analysts on average had expected an adjusted profit of $1.56 per share, according to data provided by LSEG Data & Analytics.

Jefferies analyst John Aiken said the miss was largely from the higher provisions build, while otherwise the results were solid.

“While there are still some headwinds to underlying growth, we believe that this is a result of the operating environment and not necessarily Scotia specific,” he said in a note.

National Bank analyst Gabriel Dechaine said there were some areas of concern in Scotiabank’s Canadian banking division as it showed negative earnings growth and flat loan volumes, but also pointed to provisions as the reason for the earnings miss.

“The reason BNS missed expectations was entirely due to a larger than expected addition to performing allowances, which is a conservative approach that we believe is appropriate in the current economic climate.”

Scotiabank’s said its build in provisions will help it navigate the uncertainties ahead and that its impaired provisions — the segment that it doesn’t reliably expect to get paid back — should be high enough to remain stable through the year.

“We’re not seeing any major pockets of strain in any of our portfolios, and we’re feeling quite confident as I look at the Canadian book that mortgage delinquencies have stabilized. I’m seeing auto delinquencies stabilized,” said Phil Thomas, chief risk officer.

“So as we look out the next two quarters and with our forecast, we’re seeing things relatively stable at the current rates.”

Credit agencies are showing consumers are finding it harder to pay bills, including an Equifax report out Tuesday showing delinquency rates for non-mortgage holders were up 8.9 per cent year-over-year and up 6.5 per cent for mortgage holders.

Thomas said the consumer strain is showing up at the bank less on delinquencies and more in cautious spending. He said they’re seeing less foreign travel, more budget-focused groceries and greater hesitancy on putting bids on houses given uncertainty about jobs.

“You do see some of that slowing down, but it’s not showing up in the day to day impact,” said Thomas.

“Bottom line is this is why we just did an 18 basis point performing allowance build to make sure that we’re prepared for an eventuality if it does come about that, you know, unemployment continues to spike up and we do see layoffs and and and it does significantly impact the Canadian consumer.”

This report by The Canadian Press was first published May 27, 2025.

Ian Bickis, The Canadian Press