(Adds stock prices, BMO analyst and CEO commentary, financial details)
TORONTO, Dec. 1 (Reuters) – The Bank of Nova Scotia and Bank of Montreal (BMO) beat analysts’ estimates for fourth quarter profit on Tuesday by setting aside less capital than expected to cover loan losses potential linked to the COVID-19 pandemic.
Executives of both banks said in analyst calls that their current provisions – built up by prudently taking large provisions, including on performing loans, over the past three quarters – were sufficient to cover depreciations in the past. during fiscal year 2021.
Canadian banks have braced for an increase in bad loans this year and next as the coronavirus outbreak weighs on household and business incomes, while oil prices remain below prior levels The pandemic is also raising concerns about the increase in defaults in the energy sector.
But both lenders set aside less capital than analysts expected in the quarter ended Oct. 31. Despite the deteriorating operating environment, impaired loans as a percentage of total Scotiabank and BMO loans stood at 0.8%, compared to 0.8% and 0.6%, respectively, there is one year old. These measures were largely stable from the previous quarter.
Scotiabank shares rose 2.5% to C $ 64.80 at noon Tuesday in Toronto, on track for their highest close since March. BMO shares added 3.4% to C $ 96.54. Toronto’s benchmark equities rose 0.7%.
Both lenders also reported declines in loan deferrals and low levels of defaults among those whose forbearance had expired – 1% at Scotiabank and about 2% at BMO.
The declines signal a better outlook for future credit losses, Credit Suisse analyst Mike Rizvanovic wrote in notes.
BMO recorded provisions for credit losses of C $ 432 million, compared to estimates of C $ 712.7 million, according to data from Refinitiv IBES. BMO, Canada’s fourth-largest bank, also benefited from a surprising quarterly increase in margins, as deposits widened as the spread between deposit and loan rates widened. It was also boosted by capital markets and wealth management units.
Scotiabank, the third largest lender in Canada, reported provisions for loan losses of C $ 1.13 billion ($ 871.04 million), compared to analysts’ expectations of C $ 1.44 billion .
Scotiabank reported adjusted net income attributable to shareholders of C $ 1.45 per share, compared to estimates of C $ 1.22 per share.
BMO will also end its investment and energy banking units at businesses outside of Canada to focus on the oil and gas business at home, where it sees better opportunities, a spokesperson said in a statement.
The shutdown will not have a material impact on revenues, chief executive Darryl White said on the company’s call. ($ 1 = 1.2974 Canadian dollars) (Report by Nichola Saminather in Toronto and Noor Zainab Hussain in Bengaluru edited by Aditya Soni and Matthew Lewis)