Scotiabank Skips Regular Dividend Increase Amidst Weaker Q2 2024 Earnings

The Bank of Nova Scotia (TSX: BNS), commonly known as Scotiabank, has decided to forego its traditional second-quarter dividend increase this year, signaling a significant shift from its regular cadence of dividend hikes. The bank has announced that dividend growth will resume in 2025.

This decision comes as reported weaker earnings for the latest quarter, primarily due to a rise in loan-loss provisions which offset increased revenue. The bank’s net income dropped to $2.09 billion, or $1.57 per share, for the fiscal second quarter, compared to $2.15 billion, or $1.68 per share, a year earlier. Adjusted earnings were $1.58 per share, slightly above the $1.56 analysts had forecasted, according to FactSet.

Despite the drop in net income, Scotiabank’s overall revenue grew to $8.35 billion for the three months ending April 30, up from $7.91 billion in the same period last year, and exceeding analysts’ expectations of $8.33 billion. Net interest income rose by 5.2% to $4.69 billion, while non-interest revenue increased by 5.8% to $3.65 billion.

A significant factor impacting Scotiabank’s earnings was the total provision for credit losses, which climbed to $1.01 billion. This marks an increase of $45 million from the previous quarter and $298 million higher than a year earlier. The provision for credit losses on impaired loans surged by $354 million compared to the same period last year, driven by higher formations in the bank’s international retail portfolios, especially in Colombia, Chile, and Peru, as well as increased provisions in Canadian retail portfolios, primarily in auto loans and unsecured lines.

Gross impaired loans rose to $6.4 billion as of the end of April, up from $6.12 billion last quarter.

The bank’s common equity tier 1 (CET1) capital ratio improved to 13.2% from 12.3% last year. This reflects strong internal capital generation, lower risk-weighted assets, and share issuances from the bank’s shareholder dividend and share purchase plan. The Office of the Superintendent of Financial Institutions (OSFI) had previously decided not to require banks to set aside additional capital against potential losses, maintaining the CET1 target for the major banks at a minimum of 11.5%.

In terms of its business segments, Scotiabank reported mixed results:

  • Canadian Banking: Adjusted earnings of $1 billion for the quarter, with revenue growth outpacing expense growth despite higher provisions for credit losses.
  • International Banking: Adjusted earnings of $701 million, with revenue growth driven by strong margin expansion, though offset by higher provisions for credit losses.
  • Global Wealth Management: Adjusted earnings of $389 million, an 8% increase year-over-year, attributed to higher assets under management.
  • Global Banking and Markets: Earnings of $428 million, up 7% from the prior year, supported by higher fee-based revenue and lower provisions for credit losses.

Scotiabank’s President and CEO, Scott Thomson, expressed confidence in the bank’s strategic direction despite the challenging economic environment. “The bank delivered solid results this quarter against a backdrop of ongoing macroeconomic uncertainty,” Thomson stated. “We are executing on our commitment to balanced growth as our deposit momentum continues, while maintaining strong capital and liquidity metrics.”

Scotiabank’s earnings report comes on the heels of Toronto-Dominion Bank’s earlier announcement of a sharp drop in second-quarter earnings, also due to increased credit-loss provisions and restructuring charges. Canadian banks have been bolstering their reserves in anticipation of potential loan losses as borrowers face pressure from rising interest rates.

Scotiabank last traded at $65.59 on the TSX.

Information for this briefing was found via Sedar, MarketWatch, and the sources mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.

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