Loan growth and credit quality were strong for both Canadian banks in the three months to April, leading to higher revenues and lower provisions for credit losses (PCL) compared to last year , although financial market earnings have declined due to recent market turmoil.
Shares of Scotiabank, whose adjusted earnings of C$2.18 per share came in well above expectations of C$1.96, jumped 3.7% to C$84.44 in Toronto morning trading, compared to the 1.1% gain in the general stock market index.
BMO, which reported more modest earnings of C$3.23 per share, versus C$3.21 expected, saw its shares rise 0.6%.
Both banks hinted at economic uncertainties in their calls with analysts, and said that while risks remain low, they expect some increases in LCPs and spending.
The provision for credit losses at Scotiabank, Canada’s third-largest creditor, fell to C$219 million in the quarter from C$496 million a year ago.
Scotiabank’s chief risk officer, Phil Thomas, said on the call that the bank remains optimistic about the financial health of customers, but is “aware of the current economic challenges”. PCLs have “bottomed out” and are expected to rise gradually over the rest of the year, he said.
Spending growth will also accelerate in the second half of 2022 but remain in the low single-digit range, and mortgage growth will slow but remain in the high single-digit range, Scotiabank executives said.
HIGHER SPENDING
Both banks saw their adjusted spending increase over last year, with Scotiabank up 3% and BMO up 2%.
BMO executives expect non-variable compensation expense growth to increase by about 2.5% over the next few quarters, in part due to a 3% wage hike for some employees, reported last week.
BMO’s provisions for credit losses fell from C$60 million a year ago to C$50 million, although this was a reversal of recoveries made in the past three quarters. LCPs for bad loans will climb back to pre-pandemic levels, executives said, adding that the bank has increased the weighting of its adverse scenario in its stress tests.
Nevertheless, the higher rates bring advantages. BMO’s net interest income, which increased 9% from a year ago, will continue to experience strong growth as net interest margins “expand significantly,” executives said.
Both banks have yet to see a notable increase in margins, but they have nonetheless posted year-over-year increases of more than 20% in their Canadian business, thanks to growth in mortgage lending and a continued recovery in mortgages. commercial loans. Profits from Scotiabank’s international business rose 43% on lower provisions for credit losses and higher margins, while profits from BMO’s US unit rose 8%.
While Scotiabank’s wealth management earnings rose 9%, BMO’s fell 4%. And both have seen falling profits in the financial markets.
($1 = C$1.2841) (Reporting by Nichola Saminather Toronto; Additional reporting by Manya Saini and Niket Nishant Bengaluru; Editing by Krishna Chandra Eluri, Elaine Hardcastle and Paul Simao)