While Scotiabank saw mortgage volumes down 2% compared to last year, the bank reported success with its strategy to grow deposits and strengthen customer relationships.
Last year, Scotiabank announced plans to “intentionally slow” its mortgage portfolio to focus on growing deposits and lower its reliance on wholesale funding from larger investors.
As of the third quarter, that strategy is paying off, with the bank reporting personal and commercial deposit growth up 7% year-over-year.
“Since we started this journey 18 months ago, deposits in our Canadian Banking business are up $43 billion,” said CEO Scott Thomson. “We are deploying our incremental capital to our priority businesses, in line with our medium-term objectives.”
At the same time, Scotia is also seeing a greater share of its mortgage clients secure more than one credit product. It reported that 82% of mortgage originations in Q3 were mortgage plus offerings, up from 70% in Q1. The bank says new mortgage clients averaged an additional 3.1 products and more than half (56%) have a day-to-day banking account with Scotia.
At the same time, its mortgage portfolio retention rate has improved by 190 basis points year-over-year to over 90%.
“Although balances in the Canadian residential mortgage portfolio are down slightly year-over-year, we have clearly reached an inflection point as we’ve seen the success of our multi-product mortgage plus offerings result in sequential residential mortgage growth,” Thomson added.
With its strategy well underway, Travis MacHen, head of Global Banking and Markets, says mortgage growth will likely resume in the coming quarters.
“We’ll probably see a slightly higher growth rate, but we’re not driven by market share,” he said during the Q3 earnings call. “We over-indexed on mortgages for many years. We’re interested in strong relationships with our brokers, strong retention, multi-product and focusing on value over time.”
Scotia encouraged by stable delinquency rates
The bank also reported resilience among its clients who are continuing to manage higher interest rates across all of its suite of lending products.
The percentage of mortgages that were 90+ days in arrears as of Q3 rose only slightly to 0.20%, up from 0.19% in the previous quarter and 0.12% a year ago.
Even in the bank’s auto loans portfolio, where payment challenges were expected, Scotia said net-write offs have stabilized.
“Canadian retail clients continue to show resilience and are managing their budgets prudently as discretionary spending hovered around 20% of total spending for the last six quarters,” said Chief Risk Officer Phil Thomas, adding that continued rates cuts expected from the Bank of Canada will “serve as a tailwind.”
“Product performance remains strong in the meantime,” he continued. “The number of tail risk clients in our mortgage portfolio continue to improve sequentially and represents less than 1% of our total retail loan balances.”
Thomas added that the bank’s fixed-rate mortgage portfolio has maintained a stable 90-day delinquency rate of 15 basis points, while performance of its variable-rate mortgage portfolio, where delinquency rates increased 2 basis points, “gives us confidence in our books credit quality.”
Scotiabank earnings highlights
Q3 net income: $2.19 billion (-1% Y/Y)
Earnings per share: $1.63
| Q3 2023 | Q2 2024 | Q3 2024 | |
|---|---|---|---|
| Residential mortgage portfolio | $294B | $289B | $294B |
| Percentage of mortgage portfolio uninsured | 74% | 75% | 75% |
| Avg. loan-to-value (LTV) of total portfolio | 51% | 51% | 50% |
| Portfolio mix: percentage with variable rates | 34% | 33% | 30% |
| 90+ days past due | 0.12% | 0.19% | 0.20% |
| Canadian banking net interest margin (NIM) | 2.36% | 2.56% | 2.52% |
| Total provisions for credit losses | $819M | $1.007B | $1.052B |
| CET1 Ratio | 12.7% | 13.2% | 13.3% |
Conference Call
On the bank’s mortgage portfolio:
- “71% of our new originations are coming from our brokers, but more importantly, 90% of that volume is coming with additional products and day-to-day accounts, etc.,” said Travis MacHen, head, Global Banking and Markets.
On provisions for credit losses:
- “The all-bank PCL of approximately $1.1 billion was up $45 million quarter-over-quarter,” said Chief Risk Officer Phil Thomas. “We continue to maintain sufficient allowances for credit losses. Over the last four quarters, we have increased total allowances by approximately $800 million, of which $500 million was for performing loans, bringing our ACL coverage ratio to 89 basis points, up 11 basis points from last year.”
On when Scotia may start to reduce its provision for credit losses:
- “It’s something we’re spending a lot of time thinking about right now. I have to say the numbers came in as we had expected, quarter-over-quarter,” said Thomas. “But I continue to be impressed by how resilient the Canadian consumer has been through this period, the trade-offs that they continue to make. We see that coming through our VRM, our VRM portfolio for sure.”
- “I think, I’ve been signalling auto stressing the auto portfolio for about a year now, and I was really encouraged this quarter to see, we’re finally stable as it relates to net write-offs and in that portfolio,” he added. “So have we turned a quarter? I mean, one quarter is not a trend, but I’m really encouraged by what I’m seeing for this quarter. And as, even as I look into next quarter, I see stability in these portfolios moving forward.”
On driving mortgage growth and retention:
- “We’re focused our branches on retention, and the retention rates we’re seeing are very strong. We’ve also added something new virtual retention specialists. So this is a group of folks who are virtually-based, and are driving retention across the country,” said MacHen.
Source: Q3 Conference Call
Feature image: CFOTO/Future Publishing via Getty Images
Note: Transcripts are provided as-is from the companies and/or third-party sources, and their accuracy cannot be 100% assured.
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Last modified: August 29, 2024