Scotiabank and BMO benefit from reopening Canada

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(Bloomberg) – Profits at the Bank of Nova Scotia and Bank of Montreal have been aided by Canada’s economic reopening.

Banks on Tuesday released third-quarter tax results that beat analysts’ estimates on domestic personal and business loan gains as well as the continued strength of the Canadian real estate market. This helped offset the slower rebounds of corporate US and international lenders.

Canada’s vaccination campaign followed that of the United States by a few months, pushing the resumption of activities like restaurant meals and non-essential purchases in much of the country until June. The strong national results of the Bank of Montreal and Scotiabank likely reflect this “initial under-tension” of activity in the early stages of the reopening, said Paul Gulberg, analyst at Bloomberg Intelligence.

“Canada looks pretty decent,” he said in an interview. “You have modest loan growth, and it looks like it’s both consumer and business lending, not just mortgage lending. “

Scotiabank’s Canadian personal and commercial banking division posted a 3.8% increase in business and government loans in the three months ending July compared to the previous quarter. Personal loans increased 0.7%. The domestic division of Bank of Montreal reported a 1.9% increase in commercial loans in the third quarter from the second quarter, and a 3.1% increase in consumer installment loans and other personal loans.

The two banks, both based in Toronto, also posted gains in mortgage lending as Canadian house prices continued to rise. Bank of Montreal’s Canadian mortgage portfolio increased 2.8% from the second quarter, while that of Scotiabank increased 3.6%.

Much of the growth in Bank of Montreal loans comes from new customers rather than increased use of credit by existing customers, a trend that will help fuel growth in the coming quarters, the CFO said. Tayfun Tuzun in an interview. The wider spread of vaccinations in the United States and Canada should also help lending activities, he said.

“I suspect we will see stronger growth with the vaccine rollout in Canada and the United States, and with the economic activity picking up,” he said. “I expect that number to accelerate in Canada.”

Scotiabank CFO Raj Viswanathan said the bank does not view the delta variant as a threat to loan growth or a potential catalyst for increased credit losses, with the possible exception of its tourism-dependent operations in the Caribbean. All the bank’s forecasts and scenarios indicate that the economic recovery continues despite the spread of the variant, he said.

“No one is calling for a derailment because of the delta variant,” Viswanathan said in response to questions from reporters at a virtual earnings press conference on Tuesday.

The economic reopening has allowed the two lenders to reverse the hyper-cautious stance that banks took at the start of the pandemic regarding the potential for loan losses.

The Bank of Montreal begins releasing the capital stock it has built up to protect itself against a wave of pandemic-induced defaults that never materialized, declaring C $ 70 million ($ 55 million) in recoveries of provisions for potential loan losses, compared to C $ 60 million from set-aside in the second fiscal quarter. Scotiabank had provisions for loan losses of C $ 380 million, down from provisions of C $ 496 million in the previous three months.

Lower provisions and a rebound in loans helped both banks ‘profits beat analysts’ estimates for the quarter. Scotiabank earnings excluding certain items were Cdn $ 2.01 per share. Analysts had expected C $ 1.90. For Bank of Montreal, adjusted earnings totaled C $ 3.44 per share, compared to analyst projections of C $ 2.94.

Shares of Bank of Montreal rose 1.6% to C $ 130.83 at 3:29 p.m. in Toronto, while Scotiabank slipped 0.6% to C $ 79.78.

The results of banks outside of Canada, meanwhile, did not show the same strength as their national units.

While Scotiabank’s Latin American-focused international unit posted a profit of C $ 564 million, compared to a loss a year earlier, much of that rebound was due to a reduction of 939 million Canadian dollars in provisions for credit losses. And although the profits of the US personal and commercial division of the Bank of Montreal more than doubled to C $ 553 million, loans to businesses and individuals both fell from the previous year.

(Updates with comments from CFOs from seventh paragraph.)

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