Scotiabank profit rises amid capital markets, energy concerns

Bank of Nova Scotia reported a higher quarterly profit on December 01, helped by asset growth and favourable foreign exchange moves, but weakness at its capital markets business and an increase in bad energy loans weighed on investor sentiment. Shares of Scotiabank, Canada's third-largest bank, slipped 1 percent in morning trade.
A rise in bad loans and provisions for loan losses in the energy sector highlighted worries about the bank's oil and gas presence in an environment of weak commodity prices.
The bank's drawn corporate oil and gas exposure of C$16.5 billion forms 3.5 percent of its total loan book.
"The market at some point may be concerned about the continued increases in exposure to oil and gas," said Edward Jones analyst James Shanahan, who noted that bad loans reported were still a small number for the bank.
"They are making incremental loans to commercial concerns in the oil and gas industry at a time when oil prices remain very low," he added. "That's concerning to me."
Scotiabank also named Ignacio Deschamps strategic advisor, global digital banking, to Chief Executive Officer Brian Porter. Deschamps is a former chairman and chief executive officer of BBVA Bancomer, Mexico's biggest bank.
Net income for the fourth quarter ended on October 31 was C$1.84 billion ($1.38 billion), or C$1.45 per share, compared with C$1.44 billion, or C$1.10 per share, a year earlier. Analysts on average had expected C$1.43 a share, according to Thomson Reuters I/B/E/S.
Domestic banking earnings rose 19 percent and adjusted profit at its international banking segment climbed 33 percent. But its global banking and markets division recorded a 14 percent drop in net income.
Canadian banks have remained profitable despite concerns about a sluggish domestic economy and the impact of the oil price slump. The lenders are active with both retail and commercial clients in the energy sector.
Scotiabank's gross impaired loans in the oil and gas industry rose to C$165 million from C$96 million in the third quarter and C$44 million a year earlier.
Provisions for credit losses in the sector were C$24 million, compared with none a year earlier.
"With continued low energy prices, we do expect some fender benders," Chief Risk Officer Stephen Hart said on a conference call.
He acknowledged that the oil price weakness has created "a challenging and in some instances stressed operating environment, particularly for oilfield services and upstream companies.