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Scotiabank Keeps Climbing With Its Global Approach to Banking

By Dan Caplinger - Nov 29, 2016 at 6:54PM

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Solid results both within Canada and beyond its borders helped push earnings higher.

Canada has done a good job of managing its economy to avoid disruptions to its banking system, and Bank of Nova Scotia ( BNS -1.10% ), also known as Scotiabank, has been one of the major beneficiaries of Canada's prudence. The Canadian bank has become increasingly global in its scope, seeking the best opportunities not just within its home country but across the globe. Coming into Tuesday's fiscal fourth-quarter financial report, Scotiabank investors were prepared to see continued growth, and the bank did a good job of meeting those expectations. Let's take a closer look at Scotiabank and whether it can keep climbing higher in the future.


Image source: Bank of Nova Scotia.

Scotiabank finishes its year on a high note

Scotiabank's fiscal fourth-quarter results marked the end of a successful year for the bank. Total revenue came in at C$6.75 billion, climbing 10% from its year-ago results. Net income was up 9% to C$2.01 billion, and that produced earnings of C$1.57 per share. That was C$0.06 per share higher than the consensus forecast among investors following the bank's stock.

Taking a closer look at how Scotiabank did, the bank had good fundamental performance. Net interest income was up 8%, with growth across its major business areas. Non-interest income climbed a more impressive 12%, with increases in fees helping to push the figure higher. Although non-interest expenses rose 11% from year-ago levels, Scotiabank's provision for credit losses was slightly lower than it as in the previous year's period.

Segment by segment, Scotiabank's Canadian banking business saw net income jump 14%, in part because of its acquisition of a credit card portfolio from JPMorgan Chase. Gains in assets under management, net interest income, and fee revenue were all higher, and even a 21% jump in credit loss provisions wasn't enough to hurt the unit's bottom line. Meanwhile, the international banking segment reported a 9% jump in net income largely on strength in Latin America. Rebounds in the commodities markets helped power a 42% jump in net income from the global banking and markets division. All three major segments helped offset a small loss in the bank's other category.

Scotiabank's credit status also stayed good. The bank posted a common equity tier 1 ratio of 11%, rising from last quarter's 10.5% level and allowing it to pursue strategic initiatives that it hopes will give customers a better banking experience.

CEO Brian Porter was expressed his optimism about Scotiabank's performance. "Continued strong performances in our personal, commercial, and wealth businesses, both in Canada and in our key Pacific Alliance markets, drove solid earnings growth," Porter said. The CEO also pointed to investments in digital technology that were intended to increase efficiency and provide smoother interactions between the bank and its customers.

What's ahead for Scotiabank in 2017?

Scotiabank also sees plenty of opportunity for further growth. In Porter's words, "We continue to strengthen and drive deeper customer relationships to gain profitable market share and grow earnings," and that's a strategy that has paid off in healthier business mixes and better internal returns.

Scotiabank also celebrated the fact that it had made two dividend increases during the fiscal year. The bank's payout remained at C$0.74 per share in the fourth quarter, but increases in the fiscal first and third quarters totaled to a 6% boost in what investors received in dividends.

Investors in Scotiabank applauded the news, sending the stock up nearly 2% in the regular trading session following the bank's morning announcement. With signs that the global economy is starting to perk up and that long-depressed commodity markets might be prepared to stage a longer-term recovery, Scotiabank could find itself in exactly the right place to take maximum advantage of any improvement in business conditions going forward.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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