The Bank of Nova Scotia (BNS:CA) Q4 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call highlights strong capital markets revenue growth, conservative yet positive ROE targets, and disciplined capital deployment. Despite some concerns about international banking growth, the overall outlook remains optimistic with expected EPS growth, margin expansion, and strong fee revenue. The Q&A session further supports this with expectations of double-digit EPS growth in key segments and stable deposit growth, leading to a positive sentiment overall.
Key Financial Performance
EPS (Earnings Per Share) EPS grew by 10% for the full year.
ROE (Return on Equity) Ended Q4 with an ROE of 12.5%, up 190 basis points year-over-year.
Efficiency Ratio Ended Q4 with an efficiency ratio of 54.3%, an improvement of 180 basis points versus the prior period.
Closed Referrals Closed referrals between Canadian retail, commercial, and wealth were $15 billion for the year, up 18% over last year.
P&C Deposits Increased mix of P&C deposits for the second year in a row.
Wholesale Funding Ratio Reduced wholesale funding ratio by 60 basis points this past year.
Loan-to-Deposit Ratio Loan-to-deposit ratio closed the year at 104%.
CET1 Ratio Ended the year with a CET1 ratio of 13.2% after repurchasing 10.8 million shares in fiscal 2025.
Q4 Earnings Delivered earnings of $2.6 billion or $1.93 per share, up 23% year-over-year.
Day-to-Day and Savings Deposits Day-to-day and savings deposits rose by 6% year-over-year.
Commercial Banking Pre-Tax Pre-Provision Earnings Full year pre-tax pre-provision earnings were up 21%, even as average loan balances declined by 1%.
Global Wealth Management Earnings Earnings were up 17% year-over-year, benefiting from strong AUM growth of 16%.
Global Banking and Markets Earnings Earnings were up 30% year-over-year, with ROE increasing by 320 basis points.
International Banking ROE ROE came in at almost 15%, up 110 basis points versus the prior year.
Global Asset Management Retail Net Sales Retail net sales improved by almost $7 billion in fiscal 2025.
Global Banking and Markets Underwriting and Advisory Fees Underwriting and advisory fees rose 35%, marking the best year in history for this metric.
Global Banking and Markets Loan Balances Loan balances were down 13%, but earnings in this division were up 30%.
Canadian Banking Earnings Earnings were $3.4 billion, down 9%, impacted by higher PCLs of approximately $600 million and lower margins due to rate cuts.
Global Wealth Management AUM Assets under management grew 16% year-over-year.
International Banking Earnings Earnings were $2.7 billion, up 1% year-over-year.
Canadian Banking Net Interest Margin Net interest margin was down 2 basis points year-over-year.
Canadian Banking Retail Savings Deposits Retail savings deposits grew 7% year-over-year.
Canadian Banking Retail Day-to-Day Balances Retail day-to-day balances grew 6% year-over-year.
Global Banking and Markets Capital Markets Revenues Capital markets revenues were up 43% year-over-year.
Global Banking and Markets Deposits Deposits were up 4% year-over-year.
International Banking Deposits Deposits were up 4% year-over-year.
International Banking Loans Loans were down 2% year-over-year.
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Operating Highlights
New product capabilities: Focus on building out global transaction banking platform, enhancing technology platforms including AI investments, and adding new product capabilities to drive client primacy.
Mortgage+ program: Key contributor to growth in multiproduct banking relationships, driving deposits and cards growth.
Private asset funds: Launched 4 new private asset funds tailored for wealth and institutional investors.
Geographic diversification: Demonstrated benefits of geographic diversification in International Banking segment, with strong performance in Mexico, Peru, and Chile.
Davivienda transaction: Acquisition in Colombia creates additional scale and is immediately accretive with further upside from scale and diversification.
U.S. market expansion: Investments in U.S. capabilities, including cash management business and prime services, contributed to 50% of GBM earnings in fiscal 2025.
Efficiency improvements: Simplified Canadian operations, streamlined organizational setup, and reduced wholesale funding ratio by 60 basis points.
Technology investments: Increased technology spend in 2026 focused on AI, fraud monitoring, and enhancing client experience.
Balance sheet optimization: Accelerated balance sheet velocity and reduced GBM loan balances by 13% while increasing earnings by 30%.
Client primacy strategy: Added 400,000 primary clients and increased closed referrals between Canadian retail, commercial, and wealth by 18%.
Focus on natural resources: Aligned with Canada's renewed focus on natural resource development, supporting energy and mining sectors.
North American connectivity: Pursuing deeper connectivity across North America, optimizing global transaction banking, and leveraging international footprint.
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Risk or Challenges
Trade-related economic challenges: The company faced unexpected trade-related economic challenges in fiscal 2025, which could continue to impact operations and financial performance.
Restructuring charges: The company incurred restructuring charges to simplify Canadian operations, which, while necessary, indicate challenges in operational efficiency and cost management.
Macroeconomic uncertainty: The company operates in a highly uncertain macroeconomic environment, including shifting tariff policies and unclear trade negotiations, which could affect economic activity and business performance.
Credit losses: Higher provisions for credit losses, particularly in Canadian and International Banking, indicate potential risks in loan performance and credit quality.
Elevated unemployment: Elevated unemployment in Canada is contributing to stress in retail portfolios, particularly in unsecured lines and mortgages.
Consumer finance portfolio in Chile: Continued credit quality deterioration in Chile's consumer finance portfolio poses risks to the International Banking segment.
Political and economic uncertainty in International markets: Evolving political dynamics in Peru and Chile, as well as trade negotiations in Mexico, create risks for the International Banking segment.
Technology and operational investments: Increased technology spending to strengthen and grow the bank could strain resources if not managed effectively.
Loan and deposit growth challenges: Challenges in achieving balanced loan and deposit growth, particularly in International Banking, could impact financial performance.
Regulatory and tax changes: Higher tax rates and global minimum tax implementation could affect profitability.
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Guidance & Outlook
Technology Investments: In 2026, technology spending will focus on building out the global transaction banking platform, enhancing technology platforms including AI investments, balancing security and client experience, and adding new product capabilities to drive client primacy.
Canadian Banking Growth: Fiscal 2025 laid the groundwork for stronger earnings growth in 2026, with improvements in client primacy, core deposits, and efficiency. Mortgage growth is outpacing commercial loans and cards, and the bank aims to accelerate card growth through the Scene+ loyalty program and Mortgage+ proposition.
Global Wealth Management: Strong earnings growth is expected in 2026, driven by sales momentum, growth in relationship managers, and expansion in Private Bank and ScotiaMcLeod.
Global Banking and Markets: Earnings are expected to grow modestly in 2026 after a strong fiscal 2025. Investments will continue in U.S. capabilities, including the build-out of the U.S. cash management business.
International Banking: Earnings are expected to be modestly higher in 2026, adjusting for divestitures. Growth in pretax pre-provision earnings is expected to be offset by slightly elevated loan loss provisions and a higher tax rate.
Overall Financial Outlook: The bank expects strong earnings growth in 2026, underpinned by growth in net interest income and noninterest revenue, lower credit loss provisions, and positive operating leverage. Double-digit EPS growth is anticipated despite an uncertain operating environment.
Capital and Liquidity: The bank remains committed to maintaining strong capital and liquidity ratios in 2026.
Canada's Economic Trajectory: Canada's renewed focus on natural resource development is expected to drive higher GDP growth and improved national prosperity over the medium term. The bank is well-positioned to support large-scale infrastructure projects in mining, energy, and critical infrastructure.
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Shareholder Return Plan
Dividend Program: No specific details about a dividend program were mentioned in the transcript.
Share Repurchase: The company repurchased 10.8 million shares in fiscal 2025, contributing to a CET1 ratio of 13.2%.
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Key Q&A
Q:Can you unpack the double-digit EPS growth in the Canadian Banking segment?
A:The growth will come from mid-single-digit PTPP growth driven by loan growth, margin expansion from repricing of loans, improvement in deposit margins, and disciplined expense management. PCL normalization will also contribute to bottom-line growth. Fee growth across insurance, mutual fund fees, and card fees will further support positive operating leverage.
Q:What is the outlook for ROE and capital deployment?
A:The bank is targeting 14%+ ROE, which is considered conservative. Significant earnings growth and ROE expansion are expected in the Canadian bank. Capital deployment priorities include organic growth, share repurchases, and potential small tuck-in acquisitions in the U.S. Wealth segment. There are no current plans for major M&A.
Q:Is the increase in domestic retail formations and 90-day delinquencies due to seasonality or underlying weakness?
A:The increase is not systemic but related to mortgages, particularly in the GTA. The portfolio remains strong with high FICO scores and low LTVs. Commercial GILs and PCLs have normalized, and the outlook for the Canadian bank is stable.
Q:What is the segment-wise EPS growth outlook for next year?
A:Double-digit growth is expected in Canada, high single-digit growth in Wealth, low single-digit growth in Capital Markets and International Banking. Corporate is expected to be flat in the back half of the year. Share repurchases will contribute to overall double-digit EPS growth.
Q:What is the bank's stance on its KeyCorp stake and potential U.S. M&A?
A:The bank is satisfied with its 15% stake in KeyCorp and has no plans to increase it. Any strategic decisions by KeyCorp will be evaluated as they arise. U.S. M&A is not a priority, but small tuck-ins for Wealth capabilities may be considered.
Q:What is the guidance for CET1 capital generation and minimum CET1 ratio?
A:CET1 capital generation is expected to improve to 10-15 basis points per quarter by the end of 2026. The minimum CET1 ratio target is 13%, with the bank comfortable maintaining levels above this.
Q:What is the guidance for PCL and International Banking growth?
A:PCL guidance is for impaired PCLs, with normalization expected in the latter half of 2026. International Banking is expected to show modest earnings growth, excluding the impact of divested operations.
Q:Can the North American corridor strategy be executed without a larger U.S. footprint?
A:Yes, the strategy focuses on Wealth and GBM businesses. Organic growth opportunities and enhanced product capabilities are sufficient to execute the strategy without requiring a traditional P&C or commercial bank in the U.S.
Q:Why is International Banking growth guidance lower than originally planned?
A:The lower guidance reflects modest geographic GDP growth, political uncertainties in key markets, and offsets from increasing PCLs and higher taxes. However, the bank has completed regionalization and is positioned for mid-single-digit PTPP growth in 2026.
Q:What are the key drivers for GBM revenue and earnings growth in 2026?
A:Key drivers include net interest margin expansion, disciplined balance sheet management, global client connectivity, and enhanced product and advisory capabilities. Fee income and noninterest income are expected to grow, supported by constructive capital markets.
Q:What is the outlook for domestic deposits and net interest margin?
A:Deposit growth is driven by primacy, competitive pricing, and mutual fund sales. NIM is expected to expand modestly each quarter in 2026, supported by deposit growth, mortgage repricing, and GTB operations.
Q:What is the outlook for fee revenue in the Canadian Banking segment?
A:Fee revenue is expected to grow close to double digits, driven by mutual fund fees, card fees, insurance, and cash management in commercial and small business segments.
Q:What is the bank's exposure to private credit and its stress test results?
A:The bank has $31 billion in loans to nonbank financials, with half in private credit. Stress tests show that even in extreme cases, projected losses would remain a fraction of the net revenue generated by this business.
Q:Review of Unclear Management Responses
A:Management avoided providing specific details on the potential impact of KeyCorp's strategic decisions and the exact breakdown of PCL guidance between impaired and performing categories. Additionally, the outlook for private equity gains in 2026 was described as unpredictable, and no clear forecast was provided.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
Banking line
Banking segment
Central America
Chile Consumer
Colombia Central
Consumer Finance
FX
GDP
Private
ROE basis
ScotiaMcLeod
action
bank share
branch
capability client
capacity
charge
connectivity
contribution
contributor
deal
digit loan
energy
enterprise
expansion Noninterest
gain
government
item tax
line Canadian
loan balance
market revenue
mining
mix change
mix client
point line
prosperity
resilience
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The earnings call highlights strong capital markets revenue growth, conservative yet positive ROE targets, and disciplined capital deployment. Despite some concerns about international banking growth, the overall outlook remains optimistic with expected EPS growth, margin expansion, and strong fee revenue. The Q&A session further supports this with expectations of double-digit EPS growth in key segments and stable deposit growth, leading to a positive sentiment overall.
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