Scotiabank energy-sector bad loans climb; profit tops estimates

Fri Aug 28, 2015 3:31pm EDT
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By John Tilak

TORONTO (Reuters) - Bank of Nova Scotia, which reported a quarterly profit that beat market expectations on Friday, said bad loans in the energy sector climbed as the oil price selloff took a toll.

Shares of Scotiabank, Canada's third-largest bank, were down nearly 1 percent in mid-afternoon trading.

Gross impaired loans to the oil and gas sector more than doubled in the third quarter to C$96 million from the same period last year. They were C$92 million in the second quarter.

The lender’s oil and gas portfolio forms almost 10 percent of business and commercial loans, more than any of the other major Canadian banks.

All of the five biggest Canadian lenders have reported increases in energy-sector bad loans in the third quarter, marking a clear trend that confirms investor worries about the impact the oil price weakness was having on the lenders.

"It seems to me that it's going to be a tough year ahead for Bank of Nova Scotia. They have an outsized exposure to the oil and gas industry," Edward Jones analyst James Shanahan said.

Like its peers, Scotiabank has been conducting stress tests under various scenarios to gauge the impact of plunging oil prices on its loan book.

"It’s well diversified, it’s not significant to our overall portfolio and we think it’s very manageable," Chief Financial Officer Sean McGuckin said of the lender's energy exposure.   Continued...

Snow covers the Scotiabank logo at the Bank of Nova Scotia headquarters in Toronto December 16, 2013.  REUTERS/Chris Helgren