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Scotiabank reports Q1 profit up from year ago, provisions for credit losses up

Scotiabank has reported a robust first-quarter performance, signaling optimism for the economic landscape. The bank announced a net income of $2.20 billion for the quarter, a notable increase from the $1.76 billion recorded in the same period last year. This surge in profit is particularly noteworthy considering the bank allocated $962 million for potential bad loans, a significant rise from the $638 million set aside a year ago. However, it is crucial to highlight that this provision is lower than the $1.26 billion reserved in the fourth quarter of 2023, indicative of an improved outlook for the upcoming year.

During a conference call with investors, Scotiabank's Chief Executive, Scott Thomson, conveyed an optimistic perspective, stating that the bank no longer anticipates recessionary conditions in any of its operating markets in the coming years. This positive outlook aligns with the bank's first-quarter results, which showcased strong revenue growth in its Latin American divisions, attributed to rate cuts. In contrast, the bank foresees a delayed economic upturn in Canada, expecting a resurgence later in the year.

Thomson explained, "We expect the Canadian economy to underperform both the U.S. and our key Latin American countries early this year, but show some growth reacceleration in response to policy easing and more active residential real estate markets in the back half of the year."

Despite challenges posed by persistent high interest rates, Scotiabank praised the resilience of Canadian borrowers, noting that consumers are judiciously adjusting their spending habits. The bank has strategically focused on increasing deposits, witnessing a commendable nine percent growth in Canadian deposits compared to the previous year. This emphasis on deposits has not only strengthened Scotiabank's financial position but has also contributed to a reduction in borrowing costs, positively impacting the profit margin on loans, also known as net interest margin.

While the Canadian mortgage market has experienced a slowdown due to high-interest rates, Scotiabank has navigated this challenge through sustained growth in business banking and robust momentum in credit card activities. The bank's Canadian banking business reported a seven percent increase in revenue, while its international banking segment demonstrated an impressive 16 percent growth from the previous year.

In terms of overall financial performance, Scotiabank's total revenue for the first quarter reached $8.43 billion, surpassing the $7.96 billion recorded in the same period last year. On an adjusted basis, the bank reported earnings of $1.69 per diluted share, a slight decline from the $1.84 per diluted share in the previous year. However, this exceeded the average analyst estimate of $1.61 per share, primarily driven by higher-than-expected revenue.

National Bank analyst Gabriel Dechaine emphasized the positive results, noting that Scotiabank's beat was attributed to higher revenue, augmented net interest margins, and strong performance in international banking. This favorable outcome reinforces Scotiabank's resilience and adaptability in navigating the dynamic economic environment.

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