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Scotiabank international strength in Q3 buffers it from provisions that hit rival BMO

Credit: REUTERS/CHRIS WATTIE

Canadian lender Bank of Nova Scotia beat estimates for quarterly profit on Tuesday, as strength in its international division buffered the bank from higher credit provisions, a factor that led rival Bank of Montreal to disappoint.

By Nichola Saminather

Aug 27 (Reuters) - Canadian lender Bank of Nova Scotia BNS.TO beat estimates for quarterly profit on Tuesday, as strength in its international division buffered the bank from higher credit provisions, a factor that led rival Bank of Montreal BMO.TO to disappoint.

Banks in Canada are seeing increased credit provisions on elevated household debt-to-income ratios and struggles in the oil and gas sector, while margins and capital markets businesses face pressure from a global economic slowdown and trade uncertainties.

Both banks saw higher loan-loss provisions during the quarter. BMO reported a jump of 64.5% from a year ago. Scotiabank posted a 35% rise when excluding one-off provisions taken a year earlier, although the level was below analyst expectations.

Scotiabank, which has the biggest overseas presence among the country's major banks that are focused on the Latin American trading bloc comprising Mexico, Peru, Chile and Colombia, benefitted from that exposure during the quarter.

A 14% increase in adjusted earnings in Scotia's international business to C$815 million, compared with 2.9% growth in its domestic operations to C$1.17 billion, helped lift the results of Canada's third-biggest lender, and offset a 15% decline in profit from its global banking and markets unit.

Scotiabank's adjusted earnings, excluding a one-time loss related to the sale of its operations in Puerto Rico and the U.S. Virgin Islands, was C$1.88 per share, compared with analysts' estimates of C$1.85.

"After four consecutive misses on earnings, we are encouraged" by Scotiabank's results, analysts at Canaccord Genuity wrote in a note.

While BMO's capital markets business performance beat that of most of its peers, rising 5% from a year ago, that was eroded by lower profit from its wealth management unit and a mere 1% increase in its Canadian and U.S. retail business income.

"The bank’s revenue and non-interest expenses were slightly better than we had expected, although that was more than offset by higher loan loss provisions," analysts at Credit Suisse wrote in a note.

"The wealth segment was a drag due to weaker insurance earnings... while more concerning was a C$0.05/share miss on U.S. (personal and commercial) banking as margins were materially lower than last quarter."

BMO earned C$2.38 a share excluding items, compared to analyst expectations for C$2.49 per share, according to IBES data from Refinitiv.

Last week, Royal Bank of Canada RY.TO, the nation’s biggest bank by market value, and Canadian Imperial Bank of Commerce CM.TO, the most domestically focused lender, posted profit increases. This was driven by their wealth management divisions, particularly in the U.S., and lending at home, which offset slowdowns in their capital markets businesses.

Both banks also warned of the potential impact on margins of a slowdown in global economic growth and the resulting monetary policy easing by central banks.

($1 = 1.3275 Canadian dollars)

(Reporting by Nichola Saminather in Toronto and Bharath Manjesh and C Nivedita in Bengaluru; Editing by Shinjini Ganguli and Bernadette Baum)

((Nichola.saminather@thomsonreuters.com; +1 416 687 7604; Bharath.ManjeshR@thomsonreuters.com; outside U.S. +91 80 6749 8400;))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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