This included Scotiabank‘s mortgage portfolio, where 90+ day delinquencies rose to 0.23%, up from 0.20% in the previous quarter and 0.16% a year earlier.
Despite this, the bank remains optimistic about the wave of mortgage renewals coming in the coming years and their clients’ ability to absorb higher rates. Scotiabank will see over $263 billion worth of mortgages come up for renewal over the next three years.
“Across our retail book in Canada, we’re definitely seeing some impact of higher-for-longer [rates],” Phil Thomas, Scotiabank’s Chief Risk Officer, said on the bank’s quarterly earnings call.
However, he noted that the rise in mortgage arrears was “not entirely unexpected” given the weakening economy and higher unemployment rate.
He further explained that the majority of the rise in delinquencies could be attributed to approximately 250 customers, mainly concentrated in the Greater Toronto and Vancouver areas.
However, Thomas noted that the bank’s mortgage portfolio is “starting to see some green shoots,” thanks to the Bank of Canada’s rate cuts and a decline in fixed mortgage rates throughout the year.
He added that retail provisions for credit losses (PCLs)—funds set aside to cover potential loan defaults—were down by $10 million quarter-over-quarter, driven by lower-performing allowances as recent rate cuts helped reduce the renewal risk for fixed-rate mortgage clients.
Thomas also pointed to some encouraging signs, noting that mortgage clients’ deposits have been trending upward for the second consecutive quarter after falling from pandemic highs. He said fixed-rate mortgage customers increased their deposit balances by about 6% quarter-over-quarter, while variable-rate mortgage customers saw a 5.5% rise in their deposits.
“So, you can start to see—there are some early signs,” he said, while acknowledging that “one period is not a trend.”
Scotiabank earnings highlights
2024 net income (adjusted): $8.6 billion (+3% Y/Y)
Q4 net income: $2.1 billion (+29%)
Earnings per share: $1.57 (+28%)
| Q4 2023 | Q3 2024 | Q4 2024 | |
|---|---|---|---|
| Residential mortgage portfolio | $290B | $294B | $298B |
| Percentage of mortgage portfolio uninsured | 74% | 75% | 76% |
| Avg. loan-to-value (LTV) of total portfolio | 49% | 50% | 51% |
| Portfolio mix: percentage with variable rates | 33% | 30% | 30% |
| 90+ days past due (mortgage portfolio) | 0.16% | 0.20% | 0.23% |
| Canadian banking net interest margin (NIM) | 2.47% | 2.52% | 2.47% |
| Total provisions for credit losses | $1.256B | $1.052B | $1.03B |
| CET1 Ratio | 13% | 13.3% | 13.1% |
Conference Call
General highlights:
- The bank’s personal and commercial deposits were up 7% year-over-year.
- 30% of Scotia’s clients in Canadian Banking are now considered primary clients, up 1.5 percentage points from last year, with 280,000 new primary clients added.
- “While this progress is meaningful, in order to meet our 2 million incremental primary client target by 2028, we need to accelerate our progress in 2025 and beyond,” said President and CEO Scott Thomson.
- Scotia has grown its allowance for credit losses on the balance sheet by approximately 22% since the end of fiscal 2022.
- “We are well positioned to fund our growth agenda in 2025 and beyond,” Thomson said.
- 2025 earnings growth is expected to be within the range of 5% to 7%.
- “I think we have a high level of confidence in the 5% to 7% in ’25 and then, frankly, double digits in ’26 and its earnings growth,” said Thomson.
On driving mortgage growth and retention:
- “We are also delivering on our Canadian real estate secured lending strategic repositioning. Our Mortgage+ offering, a customizable offering with an everyday account, preferred mortgage rate, and other retail products, continues to drive strong growth and primary relationships with penetration of greater than 75% among our new mortgage originations in 2024,” Thomson said.
- “The early results of these initiatives suggest improved relationship depth with our clients. The number of clients holding three or more products with us increased to 46%, up 2 points from last year and our annual client attrition rate was lower by 40 basis points,” Thomson added. “44% of our clients with term deposits are now primary clients, which is up 4.4 points this year. Importantly, 85% of clients with term deposits renewals this year stayed with the bank as a direct renewal or redeployment to investments or other products.”
On Tangerine growth
- “We continue our positive momentum in Tangerine,” Thomson said. “Net primary client growth of 19% year-over-year with our new acquisition offers driving two times higher payroll penetration. Sales through the mobile channel reached a record high at the end of 2024 at 49%, which is an increase of 7 full percentage points year-over-year.”
Source: Q4 Conference Call
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: January 11, 2025
That’s too bad for Scotiabank.
This is not, for the most part, people who have not been making their mortgage payments. This is the bank taking the monthly cost to far to fast.
They and the other banks are able to adjust and work with clients to keep them out of arrears. This is a matter of your made your bed, now lie in it.
The big 5 are able to lend on their own rates without selling off. When they can beat my best offer, already bought down, by 1/2 a percent, don’t tell me they cannot renew and keep people in their homes.
Bottom line is improved with arrears. They have made the calculations and prefer this option.
Short term profit today, find another course later to make tomorrow’s money.