The improving economy has pushed profits at Scotiabank to record levels as Canadians take out more loans, boost credit lines and give their credit cards a workout.
Scotiabank, the country's third-largest bank by assets, made almost $1.1-billion in the quarter, up 26 per cent from the previous year. The performance pushed up the bank's shares nearly 3 per cent after its earnings of $1.02 a share surpassed the Street's expectations of about 91 cents.
At the heart of the profit was the lift in Scotiabank's Canadian banking operations, a trend seen across the sector over the past week. Scotiabank was the last of the major banks to report earnings, with Canadian financial institutions reporting smaller loan losses and increases in domestic banking profit.
Canadian consumer banking profit for Scotiabank rose 42 per cent to a record $584-million, driven by mortgages and credit lines.
"Our results reflect strong contributions from personal and commercial banking and wealth management, as well as excellent performance in our wealth management business," Scotiabank chief executive officer Rick Waugh said in a statement.
However, the bank's international operations - spread across businesses in Asia, South America and the Caribbean - took a hit as profit fell 13 per cent to $288-million.
"International banking has not reached its potential due to foreign exchange and global economic headwinds. However, it is substantially achieving the plan we set out for it at the beginning of the year," Mr. Waugh told analysts on a conference call.
As the economy improves, the banks are seeing borrowers better able to keep up with their loan payments, resulting in fewer defaults. After a week when its peers reported significant drops in their provisions for credit losses - the amount of money needed to cover unpaid loans - Scotiabank followed suit.
The bank's provisions for credit losses fell to $338-million in the quarter, from $489-million a year ago. However, the bank's credit provisions in its international division went up, largely due to a single loan default from a hotel property in the Caribbean, which helped push the provision to $173-million from $115-million.
Profit also rose at the bank's wholesale division, rising 19 per cent to $391-million. But the bank reported a loss at its other operations, a segment of the balance sheet that includes adjustments and tax exemptions. That division lost $166-million compared with a loss of $198-million a year ago.
John Aiken, an analyst at Barclays Capital, said the earnings were strong, but said Scotiabank could have trouble duplicating the feat in future quarters.
"[Scotiabank]managed to exceed market earnings expectations on the back of significantly lower-than-anticipated provisions and strong revenues, particularly in trading," Mr. Aiken said in a research note to clients.
"We do note that there were several factors, including strong securities gains, trading revenues and net provision recoveries within Scotia Capital that may be difficult to repeat in future quarters."
Scotiabank, which expanded its presence in Thailand in the quarter through an acquisition, said recent political upheavals in the country shouldn't affect operations there, where it has become the third-largest bank in Bangkok.
"Despite recent turmoil, Thailand remains a growing economy," Mr. Waugh said. "While the political environment is unsettled we do not expect that this will affect our results or our strategy."