By Robb M. Stewart

Bank of Nova Scotia earnings in the latest quarter fell sharply as the big Canadian lender booked an impairment hit related to its exit from certain Latin America assets.

Scotiabank's net income dropped to 993 million Canadian dollars ($696.3 million), or C$0.66 a share, for the fiscal first quarter from C$2.2 billion, or $1.68, a year earlier. The result includes an impairment loss of C$1.36 billion related to the sale of banking operations in Colombia, Costa Rica and Panama.

On an adjusted basis that strips out certain items, the Canadian bank reported earnings of C$1.76 a share, beating the C$1.65 mean forecast of analysts polled by FactSet.

Overall revenue rose to C$9.37 billion for the for the three months to Jan. 31 from C$8.43 billion, where analysts expected C$8.87 billion.

Net interest income was up 8.4% to C$5.17 billion, while noninterest revenue increased 15% to C$4.2 billion.

Provisions for credit losses, money set aside to cover potentially soured loans, was lifted to C$1.16 billion from C$1.03 billion the quarter before and C$962 million in the same period last year. The buffer was slightly wider than the C$1.14 billion that was expected.

Scotiabank's provision for credit losses on performing loans was C$98 million, compared to a net reversal of C$13 million in the prior quarter that it said reflected credit migration in retail unsecured lines, corporate and commercial portfolios and a continued unfavourable macroeconomic outlook that now includes uncertainties related to the effect of tariffs in Canada and Mexico.

The provision for credit losses on impaired loans was C$1.06 billion versus C$1.04 billion a quarter earlier, with increased provisions in Canadian and international retail portfolios offsetting lower provisions in the bank's international commercial portfolio.

Gross impaired loans increased to C$7.06 billion as of the end of January from C$6.74 billion in the last quarter, which the bank said was primarily due to the impact of foreign currency translation and higher formations in its international retail business, mainly in Mexico and Chile.

Scotiabank at the end of last year finalized a $2.8 billion investment in KeyCorp, grabbing a 14.9% stake in the U.S. 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. Scotiabank at the time forecast the deal would result in an impairment loss of roughly C$1.4 billion for the quarter but would be capital neutral.

Scotiabank's common equity tier capital 1 ratio stood at 12.9% at the end of the quarter, 0.2 percentage point lower than in the previous quarter due largely to the impairment loss and its investment in KeyCorp. Canada's banking regulator requires the big banks to hold a CET1 ratio of at least 11.5% of risk-weighted assets.

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

(END) Dow Jones Newswires

February 25, 2025 06:02 ET (11:02 GMT)

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