Scotiabank expects up to $6.5 billion excess capital by 2020

FILE PHOTO - A woman leaves a Bank of Nova Scotia (Scotiabank) branch in Ottawa, Ontario, Canada, May 31, 2016. REUTERS/Chris Wattie

TORONTO (Reuters) - Bank of Nova Scotia expects to generate C$7 billion to C$8 billion ($6.5 billion) of excess capital by 2020, giving it the opportunity to return capital to shareholders or make acquisitions, its chief financial officer said.

“This level of capital provides optionality to consider ongoing dividend increases, share buy-backs, organic growth opportunities and further acquisitions,” CFO Sean McGuckin said in a presentation to investors on Thursday.

Canada’s third biggest lender also updated its medium term growth objectives, saying it expected to generate earnings per share growth of 7 percent or above, compared with a previous target of 5 to 10 percent growth. The bank re-affirmed its return on equity target of 14 percent or above.

The bank has focused its international growth strategy on the Pacific Alliance, a Latin American trading bloc comprising Mexico, Peru, Chile and Columbia.

McGuckin said he expects that region’s contribution to the bank’s total revenue to increase toward a 30 percent level over the next three years from 23 percent now. The bank’s Canadian business, which currently accounts for 52 percent of total revenue, is expected to remain the main sources of its revenue during that period, McGuckin said.

In November, Scotiabank reported fourth-quarter earnings which were below market expectations. Canadian banks are bracing for a number of headwinds in 2018 including stricter mortgage rules and the potential for house price declines.

($1 = 1.2317 Canadian dollars)

Reporting by Matt Scuffham; Editing by Chizu Nomiyama and David Gregorio