Bank of Nova Scotia Earnings - Q4 2025 Analysis & Highlights
Bank of Nova Scotia reported strong Q1 2026 earnings with double-digit revenue growth and improved return on equity, driven by margin expansion and disciplined expense management across all business segments, while maintaining elevated but stable credit provisions amid macroeconomic uncertainty and signaling confidence in achieving medium-term ROE targets ahead of schedule.
Key Financial Results
Adjusted earnings of CAD 2.7 billion with diluted earnings per share of CAD 2.05, representing 16% year-over-year growth in EPS.
Revenue growth of 11% year-over-year, driven by net interest income growth of 13% and non-interest income growth of 10%.
Net interest margin expanded 27 basis points from higher business line margins and lower funding costs.
Return on equity of 13%, up 120 basis points year-over-year, with management expressing confidence in achieving 14%-plus medium-term target one year ahead of plan.
CET1 ratio of 13.3% after repurchasing 4.9 million shares in the first quarter.
Productivity ratio improved 200 basis points to 52% with pre-tax pre-provision profit growth of 16% year-over-year.
Provision for credit losses of CAD 1.1 billion (excluding divestitures), with impaired PCLs of 56 basis points, up 6 basis points quarter-over-quarter.
Business Segment Results
Canadian Banking earnings of CAD 960 million, up 5% year-over-year, with return on equity of 18.1%, up 140 basis points.
Canadian Banking loan growth of 3% year-over-year, with mortgages up 5% while business and personal loans each down 1%.
Demand deposits grew 5% year-over-year while term deposits declined due to low rate environment, with over 90% of term maturities retained within the bank.
Fee and commission income in Canadian Banking grew 8% year-over-year from higher mutual fund fees, strong FX fees, and higher credit card revenues.
Global Wealth Management earnings of CAD 488 million, up 18% year-over-year, with spot AUM up 10% to CAD 436 billion and AUA growth of 8% to over CAD 800 billion.
Global Wealth Management return on equity of 17.9%, up 180 basis points year-over-year and 300 basis points since Investor Day.
Global Wealth Management net sales of CAD 1.8 billion, marking sixth consecutive quarter of positive net flows.
International Wealth Management earnings up 18% year-over-year with 45% growth in Mexico driven by higher mutual fund and brokerage fee revenue.
Global Banking and Markets earnings of CAD 545 million, up 5% year-over-year, with return on equity above 14% for the second quarter in a row.
Global Banking and Markets revenue increased 11% with capital markets revenues up 19% while business banking grew 2%.
Global Banking and Markets net interest income up 25% year-over-year from higher margin and robust capital markets activities.
International Banking earnings of CAD 717 million, up 8% year-over-year and 11% quarter-over-quarter, with return on equity of 16%, in line with medium-term target.
International Banking revenue up 4% year-over-year with net interest income up 5% from lower funding costs, mainly in Mexico.
International Banking deposits up 4% year-over-year while loans down 1%, with non-retail loans declining CAD 5 billion while retail loans grew CAD 3 billion.
Capital Allocation
Share repurchases of 4.9 million shares in Q1 2026 under current NCIB program.
Capital deployment priorities are investing in organic growth opportunities followed by share buybacks.
NCIB renewal expected with continuation of buyback program through remainder of 2026 and potentially into 2027, with 15.7 million shares repurchased to date.
Capital generation from Davivienda transaction of approximately 15 basis points, with internal capital generation of 7 basis points and 4 basis points from gains on OCI securities.
Capital usage of 16 basis points from model and methodology updates and net 8 basis points from share repurchases.
Macroeconomic Environment
Heightened macroeconomic uncertainty continues to drive elevated impaired loan loss provisions.
Unemployment rate has improved in recent months and is expected to continue trending down in coming quarters, though will take time to impact portfolio behavior.
Mexico GDP growth expected around 0.5% this year, with ongoing trade negotiations weighing on sentiment.
Chile's outlook remains stable, supported by strong commodity prices, though sustained elevated unemployment and cumulative inflation effects continue to drive softness in consumer finance portfolio.
Peru's GDP outlook remains stable supported by rise in commodity prices, though uncertainty likely to persist until new administration is placed.
Emerging markets not growing at full potential, with Mexico accounting for 60% of International Banking growth.
Recent regulatory changes in Chile (October 2025) regarding collecting calls have impacted collections in consumer finance segment.
Credit Quality and Risk Management
Gross impaired loans increased approximately CAD 425 million quarter-over-quarter, driven by CAD 200 million increase primarily from three accounts in GBM and remaining from formations across products in Canadian retail.
Gross impaired loan ratio increased 6 basis points to 95 basis points.
Allowances for credit losses increased by over CAD 200 million to approximately CAD 7.2 billion, with ACL ratio of 94 basis points, up 2 basis points quarter-over-quarter.
Canadian Banking PCLs of CAD 576 million (49 basis points), up CAD 81 million quarter-over-quarter, with retail PCLs up CAD 82 million driven by increased net write-offs in unsecured lending.
Mortgage 90-plus day delinquency increased quarter-over-quarter, driven by COVID-era mortgages concentrated in Ontario and GTA, though impaired PCLs remain low with strong collateral coverage and low average LTVs of approximately 55%.
Early stage delinquency indicators in unsecured lending showing signs of improvement, with 30-plus day delinquency in both credit cards and ULOC showing sequential improvement.
International Banking PCL ratio of 131 basis points, down 1 basis point quarter-over-quarter.
International retail total PCLs of 218 basis points, down 3 basis points quarter-over-quarter excluding FX.
GBM impaired PCLs up CAD 54 million relating to three accounts in agriculture and wholesale and retail industries.
Three GBM accounts contributed 3 basis points to All Bank impaired PCLs, with portfolio trends remaining stable and concentrated in investment grade exposures.
Growth Opportunities and Strategies
Mortgage+ program continues to drive over 90% of all mortgage originations through bundled offering encompassing lending products and deposits.
Shell Canada joined Scene+ Loyalty Network as new fuel partner, unlocking new ways for members to save and earn rewards on everyday essentials.
Retail mutual fund net sales doubled versus same quarter last year, with retail referrals to wealth of CAD 2.4 billion, up 19% year-over-year.
Canadian Wealth Management continues momentum in private bank offering with strong year-over-year loan and deposit growth.
Global Asset Management ranked third amongst peers in long-term retail mutual fund sales, up from sixth in same quarter last year.
US Transaction Banking platform continues to drive growth in Global Banking and Markets segment.
Global Transaction Banking capabilities being rolled out as key return on equity lever.
AI investments including both technology and talent, with strategic hires from other leading global banks.
AskAI tool allows employees instant access to policy and product guidance, processing over 450,000 queries in Q1 alone, representing over 60% of queries in 2025.
AML AI pilot in Tangerine demonstrated 37% reduction in existing alert volumes, with internal expertise now being leveraged to design robust solution.
International Banking pivot to growth with retail pursuing top line growth at faster pace and commercial beginning to show growth for first time in several quarters.
Global Banking and Markets building out operating and payments capabilities through Global Transaction Banking with long sales cycle and ramp.
Defence, Security and Resilience Bank partnership confirmed as way to strengthen Canada's most critical sectors.
Financial Guidance and Outlook
Impaired PCLs expected to remain elevated in first half of year, followed by gradual improvement in latter half.
Guidance for impaired PCLs of high-40s to mid-50s basis points expected to hold for full year.
Canadian Banking expected to deliver double-digit earnings growth in fiscal 2026.
Return on equity expansion expected across each business unit, with largest increase coming from Canadian Banking.
Canadian Banking target to reach closer to 24% ROE by 2028, currently at 18% with 140 basis points improvement already achieved.
Net interest margin expansion expected to continue throughout 2026 and beyond into 2027, with 2026 drivers focused on deposit margins.
2027 expected to be definitely better than 2026 if latter half plays out to expectations.
International Banking expected to remain elevated but stable in terms of impaired PCLs outlook.
Global Banking and Markets pre-tax pre-provision revenue growing between 8% and 10% on quarterly or yearly basis.
Operating environment expected to continue reflecting ongoing challenges, with impaired PCLs remaining elevated in near term before gradually trending lower as economic outlook improves.
Capital ratio expected to be well above 13%, in line with current quarter at 13.3%.
No plans to increase absolute dollar investment into KeyBank, with priority on organic growth or share repurchases.
