By Robb M. Stewart

Bank of Nova Scotia is bumping up its dividend and will buy back shares even as the uncertainty stirred up by the Trump administration's aggressive trade policies is weighing on earnings, pushing the big Canadian bank to raise provision for credit losses on its performing loans.

Scotiabank recorded a drop in net income to 1.98 billion Canadian dollars (US$1.44 billion), or C$1.48 a share, for its fiscal second quarter against C$1.94 billion, or C$1.57, a year earlier. On an adjusted basis that strips out certain items, the lender reported earnings of C$1.52 a share, missing the C$1.55 mean forecast of analysts polled by FactSet.

The fall was despite an 8.8% increase in overall revenue to C$9.08 billion for the three months to April 30 from C$8.35 billion last year.

Net interest income was 12% higher at C$5.27 billion, while noninterest revenue was up 4.3% to C$3.81 billion.

The bank's provisions for credit losses, money set aside to cover the risk of soured loans, were increased to C$1.4 billion--up C$236 million from a quarter prior and C$391 million over the same period last year. Analysts were expecting provisions to total C$1.22 billion for the second quarter.

Scotiabank's provision for credit losses on performing loans was C$346 million, up sharply from C$32 million the year before to reflect what it said was the impact of a significant deterioration in the macroeconomic outlook in the U.S., Canada and Mexico. The increase also reflects the continued uncertainty related to U.S. tariffs, which mainly affects its Canadian retail and commercial portfolios.

The provision for credit losses on impaired loans was C$1.02 million, an increase of C$77 million from a year ago due mainly to higher impairment in the Canadian retail business, as well as higher Canadian commercial provisions and one corporate account, the bank said.

Earnings season for Canada's big banks heats up this week, after kicking off with Toronto-Dominion Bank's results last week.

TD's underlying earnings topped expectations thanks to cost control and a tailwind from capital markets with heightened volatility in the recent quarter, as well as strong net interest income despite muted loan growth. Still, the lender's credit-loss provision rose to C$1.34 billion from C$1.07 billion a year prior and C$1.21 billion the quarter before.

Seven interest-rate cuts by the Bank of Canada in a row through March have lowered borrowing costs and until the uncertainty driven by U.S. trade policy were helping propel household spending. Polls in recent months indicate that concerns about job security and rising prices with the Trump administration's tariffs and the counter-levies imposed by Ottawa have prompted households to scale back spending plans. The housing market has already weakened, with sales down sharply and home prices slipping.

Scotiabank in a report to shareholders said the global economic landscape remains in flux due to U.S. policy and uncertainty surrounding its path, particularly when it comes to trade. The bank, which has operations across North America and in Latin America, expects the U.S. Federal Reserve will be forced to maintain a tighter stance than other central banks as the American economy adapts to higher tariffs and slower growth, though it also forecasts a sharp slowdown in Canada's economy and a pause on further interest rate cuts this year from the Bank of Canada.

Against the backdrop the bank moved to raise its quarterly dividend on outstanding shares by 4 cents to C$1.10 a share. It also said it would seek regulatory approval to buy back up to 20 million of its shares, which currently represents about 1.6% of the issued and outstanding total.

Scotiabank's balance sheet remains strong. Its common equity tier capital 1 ratio stood at 13.2% for the second quarter against 12.9% at the end of the prior quarter. The country's banking regulator requires the big banks to hold a CET1 ratio of at least 11.5% of risk-weighted assets.

The bank at the end of last year finalized a $2.8 billion investment in KeyCorp, grabbing an almost stake in the U.S. regional lender as part of an effort to expand its reach and gain exposure to retail banking in the country.

In January, the bank tightened its focus on its core North American operations with a deal to hand its businesses in Colombia, Costa Rica and Panama to Banco Davivienda in exchange for a stake in the enlarged Colombian lender. The exits in Latin America resulted in a C$1.36 billion impairment loss in the first fiscal quarter for Scotiabank, and a further C$26 million hit in the latest quarter.

Write to Robb M. Stewart at robb.stewart@wsj.com

(END) Dow Jones Newswires

Scotiabank recorded a drop in net income to 1.98 billion Canadian dollars (US$1.44 billion) for its fiscal second quarter against C$2.07 billion a year earlier. "Scotiabank Lifts Dividend, to Buy Back Shares Even as Higher Credit-Loss Provision Weighs," at 07:04 a.m. ET, misstated the year-earlier figure.

(END) Dow Jones Newswires

May 27, 2025 18:12 ET (22:12 GMT)

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