Auto loans, variable mortgages weigh on Scotiabank earnings
Rising strain in auto loans and Canadian mortgages led Scotiabank to set aside more money in case they go bad, leading to a drop in second quarter profits.
The bank said Tuesday its net income fell to $2.09 billion or $1.57 per diluted share for the quarter ended April 30, down from $2.15 billion or $1.68 per diluted share in the same quarter last year.
“The impact of higher rates is increasingly weighing on consumers,” said chief executive Scott Thomson on an earnings call.
“The reality of a higher-for-longer rate scenario will naturally result in a continuation of elevated credit provision in our retail portfolios.”
Scotiabank set aside $1.01 billion in the quarter for potentially bad loans, up from $709 million in the same quarter last year.
The rise, coupled with downward pressure on loan volumes, put the bank at the high end of its guidance on its provision for credit loss ratio.
Loans in Canadian banking were down one per cent from last year, including mortgages down five per cent, while business loans were up eight per cent and credit cards up 18 per cent.
Used car loans are one of the bigger areas of stress for the bank, along with variable rate mortgages largely in the Greater Toronto and Vancouver areas, said Phil Thomas, chief risk officer.
“Particularly our variable rate customers and into our auto portfolio, we’re seeing friction in those portfolios,” he said on the call.
He said the bank’s ‘vulnerable’ customers went from 2,700 in the first quarter to 3,300 in the send, while variable rate delinquencies rose 0.02 percentage points to 0.28 per cent.
It will likely take several quarters for any rate drop to show relief, said Thomas, as a 0.25 percentage point drop by the Bank of Canada will result in about a
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