Higher provisions for credit losses at Scotiabank’s domestic and international units impact third quarter earnings.

Scotiabank’s Canadian banking unit is also hit with a marked increase in expenses. Overall, the bank posts a resilient set of numbers for the quarter. Capital is moving in the right direction and Scotiabank’s Capital Markets unit enjoyed a strong quarter. The bank does however just miss analyst forecasts for the quarter to end July.

Scotiabank’s Canadian banking unit reports net income for the quarter of C$1.06bn, down 12.4% y-o-y. The decline is due primarily to higher provision for credit losses and non-interest expenses, partly offset by higher revenue. International banking net income of C$628m is in line with the year ago quarter. Higher net interest income and non-interest income, and the positive impact of foreign currency translation, is mostly offset by higher non-interest expenses, provision for credit losses and provision for income taxes.

Wealth management net income of C$366m is down by 2.5% y-o-y. The decline is due primarily to higher non-interest expenses, partly offset by strong revenue growth in the international businesses and higher brokerage revenues in Canada.

Global banking and markets net income of C$434m is up by 15% y-o-y. This is due to higher revenue and the positive impact of foreign currency translation, partly offset by higher non-interest expenses.

Credit risk

The provision for credit losses is C$819m, compared to C$412m, an increase of C$407m. The provision for credit losses ratio increases 20 basis points to 42 basis points. The provision for credit losses on performing loans is C$81m, compared to C$23m. The provision this period was driven primarily by the continued unfavourable macroeconomic outlook, challenging market conditions in Chile and Colombia driven by higher inflation, and by retail portfolio growth. The provision for credit losses on impaired loans is C$738m, compared to C$389m, an increase of C$349m due primarily to higher formations in Canadian Banking and International retail portfolios. The provision for credit losses ratio on impaired loans is 38 basis points, an increase of 17 basis points.

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“The bank delivered another quarter of stable earnings, strengthening our capital and liquidity metrics while prudently increasing loan loss allowances and managing expense growth as we navigate this period of economic uncertainty. Our results this quarter demonstrate early progress on our deposit growth initiatives and continued focus on balance sheet strength and stability, key priorities as we position the bank for our next phase of growth, “ said Scott Thomson, President and CEO of Scotiabank.