Scotiabank's loan-loss provisions rise more than expected as Canadian economy weakens

financialpost.com:

Bank of Nova Scotia missed analysts’ estimates for loan-loss provisions amid growing stress in consumer lending as the Canadian economy weakens as well as higher delinquencies among retail borrowers in its Latin American businesses.

Provisions for credit losses rose to $962 million in the fiscal first quarter, the Toronto-based bank said in a statement Tuesday. That was more than the $922 million average estimate of analysts in a Bloomberg survey.

More borrowers are confronting higher monthly payments as their mortgages come up for renewal, and that, in turn, is amping up the pressure on its credit-card holders and auto-loan borrowers. RBC Capital Markets analysts Darko Mihelic has called Scotiabank a “canary in the coal mine” to watch for stress on consumer credit.

Loan-loss provisions on performing loans for the quarter were “driven by retail-portfolio growth and the impact of the continued unfavourable macroeconomic outlook, mainly on the commercial, corporate and Canadian retail portfolios,” Scotiabank said in the statement, while provisions for impaired loans were driven by Canadian auto loans and unsecured lines and delinquencies in international banking retail portfolios, mostly in Colombia, Peru and Chile.

Scotiabank, which unveiled a new strategy under chief executive Scott Thomson in December, was the only large Canadian lender to shrink its domestic mortgage book last year, and it actively sought out more core deposits to lower its cost of funding. It was all an effort to strengthen net interest margins, the difference between what it earns on loans and the amount it pays in interest for deposits.

“The bank delivered solid earnings this quarter driven by strong revenue growth, margin expansion and expense