(Adds comments from CFO, paragraphs 4-6)
By John Tilak
TORONTO, Dec 1 (Reuters) - Bank of Nova Scotia reported a higher quarterly profit on Tuesday, helped by asset growth and favorable foreign exchange moves, but weakness in its capital markets business and an increase in bad energy loans kept the optimism in check.
Shares of Scotiabank, Canada's third-largest bank, added 0.5 percent.
A rise in bad loans and provisions for loan losses in the energy sector highlighted worries about the bank's oil and gas presence in an environment of weak commodity prices.
The bank's drawn corporate oil and gas exposure of C$16.5 billion forms 3.5 percent of its total loan book.
"We're very comfortable with that portfolio. We think it's in good shape," said Chief Financial Officer Sean McGuckin, who noted that the lender has completed about 70 percent of its planned borrowing base redeterminations.
For two thirds of those companies, Scotiabank has either confirmed current levels or increased those limits, he said in an interview.
"We've not relaxed terms," McGuckin added.
Canadian banks have remained profitable despite concerns about a sluggish domestic economy and the impact of the oil price slump. The lenders are active with both retail and commercial clients in the energy sector.
Scotiabank's gross impaired loans in the oil and gas industry rose to C$165 million from C$96 million in the third quarter and C$44 million a year earlier.
Provisions for credit losses in the sector were C$24 million, compared with none a year earlier.
"The market at some point may be concerned about the continued increases in exposure to oil and gas," said Edward Jones analyst James Shanahan, who noted that bad loans reported were still a small number for the bank.
"They are making incremental loans to commercial concerns in the oil and gas industry at a time when oil prices remain very low," he added. "That's concerning to me."
Scotiabank also named Ignacio Deschamps strategic advisor, global digital banking, to Chief Executive Brian Porter. Deschamps is a former chairman and chief executive officer of BBVA Bancomer, Mexico's biggest bank.
Net income for the fourth quarter ended on Oct. 31 rose to C$1.84 billion ($1.38 billion), or C$1.45 per share. Analysts on average had expected C$1.43 a share, according to Thomson Reuters I/B/E/S.
Domestic banking earnings rose 19 percent and adjusted profit at its international banking segment climbed 33 percent. But its global banking and markets division recorded a 14 percent drop in net income. ($1 = 1.3317 Canadian dollars) (Reporting by John Tilak; Editing by Jason Neely, Lisa Von Ahn, Jonathan Oatis and Will Dunham)