The U.S. operations of Canada's Bank of Nova Scotia are benefiting from strong loan growth, partly compensating for recent sluggishness in its capital markets business that is weighing down profits.
Between May and July, the Toronto-based bank recorded a 22% increase in loan balances from the same period a year earlier, with the largest contribution coming from the United States.
"You've seen continued strong loan growth in our focus markets like the U.S. and Canada," Jake Lawrence, group head and CEO of Scotiabank's global banking and markets division, said Tuesday during an earnings call.
Still, earnings in Scotiabank's global banking and markets division declined by 26% to $291 million in U.S. dollars.
Issuances in the bank's debt capital markets business fell by more than 60% in both the United States and Canada, while equity capital market issuances declined by more than 80% in each of the two countries.
Scotiabank — the first of Canada's big five banks to report its third-quarter earnings — operates a wealth management business in the United States, in addition to corporate and institutional banking. Its retail banking footprint spans Canada and several Latin American countries.
Scotiabank's U.S. operations reported net income in U.S. dollars of $107.3 million, down from $147.4 million during the same period last year. While net interest income rose, noninterest income declined and the provision for credit losses grew.
Since the end of July, the bank's slumping capital markets business has started to bounce back, according to company executives. "There are some signs of the rebound happening," Lawrence told analysts, "in those key markets in Canada and the U.S."
The Canadian bank, which has $997 billion of assets in U.S. dollars, reported total quarterly net income of $2 billion, which was up 2% from the same period last year.
During the quarter, Scotiabank's net interest margin slipped by one basis point to 2.22%, which company executives attributed partly to trends in countries such as Peru, Colombia and Chile, where deposits have been repricing upward faster than loans have. They pointed to steep interest rate hikes by those countries' central banks in an effort to fight inflation.
Over the last eight months, two of Scotiabank's largest competitors in Canada have struck deals to expand their U.S. footprints substantially.
In December, Bank of Montreal
Scotiabank executives said Tuesday that their strategy is to grow organically, while being opportunistic with respect to inorganic growth and also returning capital to shareholders.
"Our priority remains to deploy capital to support organic growth initiatives in each business line while prudently managing capital in the face of a less certain economic outlook," Chief Financial Officer Raj Viswanathan told analysts.
Royal Bank of Canada is scheduled to report its quarterly earnings on Wednesday, followed by TD Bank and Canadian Imperial Bank of Commerce on Thursday, and BMO on Aug. 30.
