Bank of Nova Scotia has reported a strong profit growth as banking activity in domestic and international operations rose encouragingly, recording its biggest one-day gain in over seven years. The Canadian bank has increased provision for bad loans in the oil and gas sector, and is expanding in Mexico, Chile, Columbia and Peru.
Toronto-based Bank of Nova Scotia's robust banking operations set off fears about rising loan losses in the global banking sector. The encouraging growth in international banking strengthened Scotiabank's topline.
The Globe And Mail reports that the focus on four-nation Pacific Alliance trading bloc comprising Mexico, Chile, Columbia and Peru has been successful for the bank. Leveraging on a positive currency translation, the profit rose 21 percent. But, the loans and deposits also rose in double-digit numbers.
Brian Porter, Scotiabank's chief executive officer, said "These economies are going to grow anywhere from 2.5 per cent to 4 per cent. We can operate very good banks in that type of environment."
Bank of Nova Scotia is the third largest bank in Canada. Scotiabank recorded profit surged 5.1 percent to $1.8 billion during the first quarter of the fiscal. The Canadian bank has also raised dividend by two cents to 72 cents per share, according to BNN (Business News Network).
Bank's net income rose following the increase of 21 percent in international banking operations taking the volume to $505 million. The weaker Canadian currency also helped boost global banking in Latin America. Quarterly net income rose to $1.81 billion from $1.73 billion.
Scotiabank has downgraded about 10 percent of its energy portfolio during the quarter. The bank expects adverse conditions in the exploration and production operations. About five percent of energy portfolio is on the bank's watchlist. Porter said "We expect there to be additional provisions for some of our loans in the energy sector."
Reuters further adds that Scotiabank has set aside more funds for bad loans in the oil and gas sector. The Canadian bank sees worst scenario in the coming days in the wake of cheaper oil prices hitting all the players in the industry. Other banks that have major exposure to the oil industry are Royal Bank of Canada, Bank of Montreal and Canadian Imperial Bank of Commerce. All these banks have reported surging bad loan provisions in the first quarter numbers.
Developing markets are more vulnerable to slump in commodities markets and changes in the US monetary policy as well. The provision for credit losses was increased by 16 percent to $539 million for the first quarter ending January 2016. The bank has made higher provisions in the oil and gas sector and in the Canadian retail portfolio as well.
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