The Bank of Nova Scotia (BNS:CA) Q2 2026 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call summary and Q&A indicate a generally positive outlook. Canadian Banking earnings are set to grow, supported by margin expansion, while international banking shows strong non-retail loan growth. The company is optimistic about the Canadian economy and plans for share buybacks, indicating confidence. Despite some uncertainty in macro conditions, the focus on organic growth and AI investments suggests long-term potential. The Q&A session provided additional positive insights, particularly regarding strong commercial momentum and non-interest revenue growth in Canadian banking.
Key Financial Performance
Adjusted Earnings $2.7 billion or $2.02 per share, with pretax pre-provision earnings up 16% year-over-year due to revenue growth and effective expense management.
CET1 Ratio 13.3%, even after repurchasing 6.4 million shares in the quarter. This reflects strong capital management.
Return on Equity (ROE) 13.2%, up 270 basis points year-over-year, driven by strong revenue growth of 13%.
Canadian Banking Pretax Pre-Provision Earnings Up 13% year-over-year, supported by margin expansion and strength in fee income from wealth management, credit card, and insurance revenues.
Canadian Banking Productivity Ratio Down 230 basis points year-over-year, contributing to positive operating leverage for the third consecutive quarter.
Savings and Deposits in Canadian Banking Up 3% year-over-year, despite industry-wide term deposit contraction.
Commercial Loan Growth in Canadian Banking Up 2% sequentially, with expectations for acceleration due to a robust pipeline.
International Banking Pretax Pre-Provision Earnings Up 12% year-over-year, driven by 7% revenue growth and strong expense discipline.
Mexico Revenue and Earnings Revenue up 8% year-over-year and earnings up 25% year-over-year, reflecting strong performance.
Retail Loans in International Banking Up 4% year-over-year, with non-mortgage loans growing 7%, particularly in Mexico and the Caribbean.
Deposits in International Banking Up 5% year-over-year and 3% quarter-over-quarter, reflecting a focus on deposit growth.
Global Wealth Management Net Sales $4.7 billion, 4x higher than Q2 2025, marking the seventh consecutive quarter of positive net flows.
Global Wealth Management ROE 17.9%, up 210 basis points year-over-year.
Global Banking and Markets Revenue Up 9% year-over-year, driven by a 25% increase in capital markets revenue.
Net Interest Income Grew 10% year-over-year, with net interest margin expanding by 24 basis points due to higher business line margins and lower funding costs.
Noninterest Income Up 17% year-over-year, driven by higher wealth management revenues, investment gains, and income from associated corporations.
Expenses Grew 7% year-over-year, mainly due to higher performance-based and personnel costs and a 9% increase in technology spending.
Canadian Banking Earnings $935 million, up 53% year-over-year, driven by 13% pretax pre-provision earnings growth and lower credit loss provisions.
Global Wealth Management Earnings $474 million, up 19% year-over-year, with Canadian earnings up 20% and international earnings up 12%.
Global Banking and Markets Earnings $457 million, up 11% year-over-year, supported by a 9% revenue increase.
International Banking Earnings $701 million, up 3% year-over-year, with revenue up 7% and deposits up 5% year-over-year.
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Operating Highlights
Scotia High Interest Savings Account: Launched as one of Canada's first relationship-based accounts offering tiered regular interest rates based on a client's total relationship balance across eligible Scotiabank accounts.
Scotia Intelligence and Scotia Navigator: Introduced to unify AI capabilities and governance for secure and scalable delivery globally. These tools aim to automate routine tasks and enhance decision-making and client interactions.
Commercial Loan Growth: Commercial loans grew 2% sequentially this quarter, with expectations for acceleration due to a robust pipeline.
International Banking Expansion: Retail loans grew 4% year-over-year, with non-mortgage loans growing 7%, particularly in Mexico and the Caribbean. Commercial loan growth was up 2% quarter-over-quarter.
Global Wealth Management: Net sales for the quarter reached $4.7 billion, marking a significant increase from the previous year. Canadian Wealth Management benefited from higher referral volumes, and international wealth earnings grew 12% year-over-year.
Operational Efficiency in Canadian Banking: Productivity ratio improved by 230 basis points year-over-year, contributing to positive operating leverage for the third consecutive quarter.
AI Integration: AI tools like Scotia Intelligence and Scotia Navigator are being embedded across processes to improve efficiency and decision-making.
Capital Deployment Strategy: Prioritizing organic growth, followed by share buybacks and strategic tuck-in acquisitions.
Focus on High-Quality Deposits: Launched initiatives to grow high-quality, sticky deposits, including the Scotia High Interest Savings Account.
AI Strategy: Adopted a model-agnostic approach to AI, focusing on security, flexibility, and data governance to scale AI effectively and securely.
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Risk or Challenges
Geopolitical Developments: Unexpected geopolitical developments are creating uncertainties that could impact trade flows and GDP growth.
Inflation and Energy Costs: Elevated energy costs and inflationary pressures are straining consumers and businesses, particularly in Canada and international markets like Mexico, Chile, and Peru.
Credit Risk: Increased provisions for credit losses, particularly in International Banking, due to specific corporate accounts and macroeconomic uncertainties.
Deposit Competition: Intensifying competition for deposits, particularly in the retail GIC market, could impact the bank's ability to grow high-quality deposits.
Loan Growth Challenges: Loan growth remains in the low single digits, with challenges in catching up to broader market growth by year-end.
Macroeconomic Uncertainty: Persistent trade uncertainty, higher unemployment, and elevated energy costs are pressuring both consumers and businesses.
AI and Cybersecurity Risks: The adoption of advanced AI models introduces cybersecurity risks, requiring robust governance and controls.
International Banking Risks: Retail and non-retail impaired performance in international markets remains elevated, with specific concerns in Mexico, Chile, and Peru due to trade and energy cost uncertainties.
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Guidance & Outlook
Capital Deployment: The company plans to prioritize organic growth, followed by share buybacks and strategic tuck-in acquisitions. It expects to maintain strong capital ratios while continuing to return capital to shareholders through share buybacks and dividends.
Return on Equity (ROE): The company aims to achieve a return on equity of 14% or higher by fiscal 2027, one year ahead of its Investor Day target.
Canadian Banking Loan Growth: Average loan growth is expected to catch up to the broader market by the end of the year, driven by an acceleration in commercial loan growth and continued high single-digit growth in the small business portfolio. Spot credit card growth is projected to reach mid-single digits by year-end, and mortgage volume is expected to keep pace with peers.
International Banking Loan Growth: Commercial loan growth is expected to modestly improve in the second half of the year, supported by a cash management-first strategy. Retail loans are projected to grow by 4% year-over-year, with non-mortgage loans growing by 7%, particularly in Mexico and the Caribbean.
Global Wealth Management: The company expects continued growth in net sales and deeper connectivity with Canadian Banking, supported by higher referral volumes and increased penetration within its network.
Global Banking and Markets: Loan growth is expected to accelerate as the year progresses, driven by the capital market strategy and a focus on customers with broader multi-product relationships. The deal pipeline is strong, and the company anticipates continued growth in capital markets revenues.
Artificial Intelligence (AI) Strategy: The company is investing in AI to enhance operational efficiency and client interactions. It plans to embed AI across processes, decision-making, and client interactions, with a focus on security, flexibility, data quality, and platform-first thinking.
Provisions for Credit Losses (PCLs): Impaired PCLs are expected to settle in the mid-50 basis points range for the remainder of 2026, with a gradual moderation from first-half levels.
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Shareholder Return Plan
Quarterly Dividend Increase: Announced a quarterly dividend increase of $0.04 per share, reflecting confidence in earnings growth.
Capital Returned via Dividends: Over the past 12 months, $7.5 billion in capital was returned to shareholders through dividends and share buybacks.
Share Repurchase Program: Repurchased 6.4 million shares in the quarter as part of the 2025 and 2026 share repurchase programs.
Capital Returned via Share Buybacks: Over the past 12 months, $7.5 billion in capital was returned to shareholders through dividends and share buybacks.
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Key Q&A
Q:Can you confirm if the impaired PCL guidance for fiscal '26 is higher than before and explain the confidence in the moderation of PCLs in the back half of the year?
A:Shannon McGinnis confirmed that the impaired PCL guidance for fiscal '26 is now higher, settling in the mid-50 basis points range. Confidence in moderation comes from mixed performance in international retail, improved collections in Canadian retail, and monitoring of non-retail sectors exposed to trade dynamics and oil price volatility. However, the moderation will be more gradual than initially anticipated due to changes in the macro environment.
Q:Can you provide perspective on the performing loan allowances relative to forward-looking indicators and expectations for impaired loans?
A:Shannon McGinnis explained that the performing loan build this quarter was 5 basis points, with $50 million related to forward-looking indicators. The reserves are considered appropriate and will be reassessed quarterly as the environment evolves.
Q:What contributed to the elevated 'other income' in the corporate segment this quarter?
A:Rajagopal Viswanathan stated that the elevated 'other income' was due to $35-$40 million in mark-to-market gains on the private equity book and $46 million from an equity pickup related to WBN's asset mark-to-market increases.
Q:Are there expectations for a higher impaired PCL ratio in 2027?
A:Shannon McGinnis focused on the 2026 guidance, noting that while improvement is expected in the latter half of the year, it will be more gradual due to the macro environment. Canadian retail is a key area of focus, with inflationary pressures factored into the outlook. Scott Thomson expressed optimism for Canada in 2027 due to factors like being an oil-exporting nation and a business-friendly government.
Q:What is the outlook for the corporate segment's gains in the next quarter?
A:Rajagopal Viswanathan expects the corporate segment to return to a modest loss next quarter.
Q:What drove the significant increase in international margins this quarter, and what is the outlook?
A:Rajagopal Viswanathan attributed the increase to lower funding costs in Latin America, no U.S. rate cuts benefiting the Caribbean, and a favorable asset balance mix. The outlook for the next quarters is a margin of 4.65%-4.74%, higher than the normal expectation of 4.40%-4.50%.
Q:What is the progress and outlook for non-retail loan growth in the international segment?
A:Francisco Aristeguieta Silva stated that non-retail loan growth is consistently progressing, with strong performance in Mexico, Peru, Chile, and the Caribbean. The focus is on building a sustainable, high-quality portfolio, with consolidation expected by 2027.
Q:What is the net interest margin (NIM) outlook for Canada, considering factors like mortgage renewals and deposit competition?
A:Rajagopal Viswanathan and Aris Bogdaneris expect continued NIM expansion, driven by better deposits, loan growth, and a shift towards non-mortgage lending. Mortgage renewals and commercial lending growth will also contribute positively.
Q:What are the drivers behind the strong non-interest revenue (NIR) growth in Canadian banking?
A:Aris Bogdaneris highlighted three drivers: a shift to premium credit cards, record mutual fund sales, and growth in insurance. Jacqueline Allard added that strong AUM growth and net new client flows in wealth advisory also contributed.
Q:What is driving the strong commercial momentum and expected growth in Canada?
A:Aris Bogdaneris attributed the growth to rebuilding the sales force, adding resources in high-growth markets, and stabilizing real estate paydowns. Increased client acquisition and primacy are also contributing factors.
Q:How many large loans similar to the one in the non-retail international banking segment exist, and what is the concentration risk?
A:Shannon McGinnis explained that the specific file in Brazil was an isolated case driven by company-specific factors. The non-retail portfolio is well-diversified, with a watch list below 2% of total outstandings, and no systemic stress is observed.
Q:What is the outlook for the Canadian economy in the next 6-12 months and beyond?
A:Scott Thomson expressed optimism due to Canada being an oil-exporting nation, increased foreign investment, and a business-friendly government. He acknowledged near-term challenges but highlighted fiscal stimulus and improved investor sentiment as positive factors.
Q:What is the approach to capital allocation, including share buybacks and tuck-in acquisitions?
A:Scott Thomson stated that the first priority is organic growth, followed by share buybacks due to the valuation gap. Tuck-in acquisitions in areas like mortgage capital markets and U.S. offshore booking points are being considered, with potential sizes of $200-$400 million.
Q:Review of Unclear Management Responses
A:Management avoided directly addressing the question about the potential for a higher impaired PCL ratio in 2027, focusing instead on the 2026 guidance and macroeconomic factors. Additionally, while Shannon McGinnis provided context on the Brazil portfolio, the response lacked specific details on the number of similar large loans and their concentration risk.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
AI
Banking Markets
Canadian Banking
Chile
Commercial
Global Banking
International Banking
Mexico
PCLs
Scotia
Scotiabank
Slide
Wealth
account International
basis point
client
corporation
date leverage
deposit
energy
governance
interest income
investment
loan
monitoring
mortgage
point basis
pressure
principle
provision basis
ratio
relationship
revenue
risk
sale
segment
trade
BNS Transcript
The Bank of Nova Scotia (BNS:CA) Q2 2026 Earnings Call Transcript
Positive5-27
The earnings call summary and Q&A indicate a generally positive outlook. Canadian Banking earnings are set to grow, supported by margin expansion, while international banking shows strong non-retail loan growth. The company is optimistic about the Canadian economy and plans for share buybacks, indicating confidence. Despite some uncertainty in macro conditions, the focus on organic growth and AI investments suggests long-term potential. The Q&A session provided additional positive insights, particularly regarding strong commercial momentum and non-interest revenue growth in Canadian banking.
The Bank of Nova Scotia (BNS:CA) Presents at 24th Annual Financial Services Conference Transcript
Neutral3-24
Whitecap Resources Inc. (WCP:CA) Q4 2025 Earnings Call Transcript
Positive2-24
The earnings call highlights strong financial performance with record production and funds flow, alongside effective capital management through dividends and share repurchases. The Q&A reveals strategic hedging and pricing diversification, though some responses lack specifics. Despite challenges like lower commodity prices, the company's robust reserves and operational efficiency support a positive outlook. The positive shareholder returns and reduced operating costs further bolster sentiment. However, limited guidance details and hedging constraints temper the outlook slightly, resulting in a positive rather than a strong positive sentiment.
The Bank of Nova Scotia (BNS:CA) Q1 2026 Earnings Call Transcript
Positive2-24
The earnings call summary indicates strong financial performance with sustainable growth, especially in retail and commercial sectors. Despite macroeconomic challenges, the bank's strategic investments in technology and AI, along with a disciplined approach to expenses, are positive indicators. The Q&A session highlighted limited exposure to volatile sectors, strong capital ratios, and a focus on value over volume. Although there are some uncertainties in emerging markets, the overall sentiment is positive, with a focus on growth and efficiency.
BNS Report
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