Canada's Scotiabank misses profit estimates as tariffs push up loan loss reserves

Reuters

28-05-2025

May 27 (Reuters) - Bank of Nova Scotia (BNS.TO), opens new tab on Tuesday missed quarterly earnings estimates, burdened by a larger than expected sum of money put aside to shield against bad loans in a challenging environment riddled with trade uncertainties.
Scotiabank's Canadian banking unit, its biggest income generator, recorded a 31% drop in net income largely due to an increase in loan loss reserves as U.S. tariffs weigh on Canadian retail and commercial portfolios.
U.S. President Donald Trump's trade policies have created tremendous uncertainty for Canada's economy. But some analysts are optimistic that newly elected Prime Minister Mark Carney will implement pro-business policies that will drive private sector investment.
CEO Scott Thomson noted the new political stability in Canada but said weaker consumer and business confidence would hurt near-term loan growth and capital markets activity.
"We have seen softness. We have seen uncertainty. But as we look to the back half of this year and into 2026, I do think there's a moment here where you're going to see an inflection point, a little bit more loan growth," Thomson told analysts.
Consumers were being cautious with their spending, holding back on adding new debt or making new investments and were instead building their cash savings, Scotiabank executives said.
Loan loss provisions, the money lenders set aside to cover for souring loans, rose to C$1.40 billion ($1.02 billion), from C$1 billion a year ago. Analysts had projected C$1.22 billion.
Bay Street viewed the expansion of Scotiabank's rainy day reserve as a positive. Analysts said, excluding the reserve build-up, the lender's results were strong, supported by its first dividend increase in two years.
"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," Jefferies analyst John Aiken said.
Shares of Scotiabank, Canada's fourth-largest by market capitalization, rose 1% in Toronto.
Since taking charge in 2023, Thomson has led the company in a new direction focusing on the $1.5 trillion North American trade corridor by selling troubled assets in Colombia, Panama and Costa Rica and investing in regional U.S. lender KeyCorp (KEY.N), opens new tab.
Scotiabank's international business reported a 6% increase in adjusted earnings, and its global banking and markets segment recorded a 10% rise.
The bank reported adjusted earnings of C$1.52 per share, compared with analysts' average estimate of C$1.56, according to LSEG data.
Scotiabank is the second big Canadian lender to report after TD Bank (TBNK.TO), opens new tab, which announced a 2% workforce reduction.
($1 = 1.3759 Canadian dollars)