Canada’s Bank of Nova Scotia (BNS) reported net income of C$1.3 billion (US$950 million) for the third-quarter ended July 3, down 47 per cent over the similar period in 2019.
Revenues were C$7.7 billion (US$5.6 billion) in the quarter, one per cent over 2019, driven by non-interest income.
Net interest income was C$4.3 billion (US$3.1 billion), down 2.8 per cent from the prior-year quarter while non-interest income climbed six per cent from the corresponding quarter to C$3.5 billion (US$2.6 billion).
Chief executive officer of BNS, Raj Viswanathan, said the bank’s results in Q3 were negatively impacted by a full quarter of COVID-19, which resulted in higher loan loss provisions and lower customer activity.
“Retail banking in Canada and across the international footprint saw lower revenue and higher loan loss provisions. At the same time, we had record results in Global Banking and Markets, and solid growth in Wealth Management, both of which benefited from strong customer activity,” he outlined.
Adjusted net income was US$1.3 billion and diluted EPS was US$1.04 for the quarter, which is in line with the last quarter.
Net interest income, excluding divestitures, was flat as higher contributions from asset liability management activities, and loan growth was offset by the negative impact of foreign currency translation.
Non-interest income, excluding divestitures, was higher from strong trading and underwriting revenues that were partly offset by lower banking, insurance and commission revenue. The core banking margin of 2.1 per cent was down 35 basis points from last year.
This was largely driven by higher balance sheet liquidity invested in lower yielding assets, which contributed to 13 basis points of this decline, the CEO said.
He outlined that credit migration increased with weighted assets by about $1 billion. Business banking unfavourable migration of US$4 billion was offset by favourable retail migration of approximately US$3 billion. Retail risk-weighted assets benefited from lower overall delinquency rates in each of the bank’s portfolios. Lower delinquency resulted from the impact of the government stimulus and the bank payment deferral programs, while lower consumer spending also contributed to the lower revolving credit utilisation rates.
The bank’s total loans grew five per cent, with mortgages up six per cent and commercial lending up 10 per cent, while credit card balances declined 13 per cent.
Sequentially, mortgages grew 1per cent and deposits grew a strong 10 per cent. The net interest margin was down 18 basis points year over year and seven basis points quarter over quarter, driven by the full-quarter impact of rate cuts and changes in business mix.
Expenses declined two per cent year over year and four per cent quarter over quarter, mainly driven by lower advertising and business travel costs and the impact of other cost control initiatives.
The CEO said that for international banking, earnings of US$53 million were down significantly due primarily to higher provisions for credit losses on performing loans and the impact of previously announced divestitures.
Similar to Canadian banking, international banking revenues were also negatively impacted by a full quarter of the pandemic.
The banks risk manager noted that many countries around the world, including Latin America, had expected to reopen their economies but were subsequently delayed.
This also impacted the bank’s macroeconomic outlook. During Tuesday’s earnings call management reported seeing positive trends in both retail and wholesale customer activity with debit and credit card transaction volumes returning to more normal levels in several of core markets.