May 26 (Reuters) - Bank of Nova Scotia and National Bank of Canada reported better-than-expected second-quarter results on Tuesday despite large profit declines driven by spikes in loan-loss provisions due to the COVID-19 pandemic.
Canadian banks are bracing for higher loan losses this year and next due to the pandemic-driven recession. While loan deferrals and government aid have helped contain some short-term damage, borrowers are expected to struggle when repayments come due.
“The world is enduring extremely challenging times, both from a health and financial perspective,” National Bank Chief Executive Louis Vachon said in a statement, adding the provisions reflect the bank’s “most prudent estimate ahead of an uncertain macroeconomic outlook.”
National Bank posted a 32% decline in profit in the three months ended April 30, as money set aside to cover future loan losses surged six-fold to C$504 million ($365.59 million) from a year earlier. It reported earnings per share of C$1.01, beating analyst estimates of 91 cents.
Scotiabank, which earlier posted a 41% year-on-year drop in profit as provisions more than doubled, also beat expectations, sending shares up 7.4% to close at C$55.84, the biggest one-day increase in two months. The Toronto stock benchmark closed up 0.5%.
National Bank reported after markets closed.
Scotiabank CEO Brian Porter earlier said he expects loan-loss provisions in the third quarter to be similar to the previous period, but said the outlook beyond that remains murky.
“The banking sector will be picking up the broken eggshells for a number of quarters,” he said on an analyst call.
Profit in National Bank’s P&C unit dropped 71%, but earnings were helped by gains in wealth management income on higher fee revenues.
Scotiabank’s global banking and markets also saw earnings climb 25%, as market volatility boosted trading.
$1 = 1.3786 Canadian dollars Reporting by Nichola Saminather in Toronto and Abhishek Manikandan in Bengaluru; Editing by David Gregorio and Tom Brown