Bank of Montreal and Bank of Nova Scotia reported lower than expected quarterly profits on Wednesday, as the Canadian banks were forced to set aside more funds due to a weakening housing market and global banking uncertainty. Shares of both banks were down in early trading in Toronto, weighing on the country’s main stock index.
Adjusted income from Scotiabank’s Canadian banking segment fell 10%, while that of BMO’s fell 8%, reflecting higher provisions for credit losses. Provisions for credit losses jumped to C$709 million from C$219 million, due to economic uncertainty and challenging market conditions in Chile and Colombia. BMO’s adjusted provision for credit losses was C$318 million at the end of the second quarter, compared with C$50 million a year ago.
Executives for both banks said they were cautious about broader macroeconomic uncertainty, with BMO assuring investors it was confident that its $16.3 billion Bank of the West acquisition earlier this year would boost earnings in the coming years. Scotiabank said it was prudent as some key markets in Latin America face inflationary pressures.
The Bank of Canada said it was more concerned than it was last year about households being able to pay off their debts and was seeing signs of financial stress among some home buyers. BMO’s net income, excluding one-off items, rose to C$2.22 billion ($1.65 billion), or C$2.93 per share, for the three months ended April 30, compared with C$2.19 billion, or C$3.23 a share. Scotiabank’s net income fell to C$2.17 billion ($1.62 billion), or C$1.7 a share, from C$2.77 billion, or C$2.18 a share, a year earlier.
Overall, the results reflect the current economic uncertainty and challenging market conditions in Canada and abroad. Both banks remain cautious about the macroeconomic outlook, but are confident that their respective acquisitions will boost earnings in the coming years.