Canada’s most international bank and third-largest lender Bank of Nova Scotia (TSX:BNS)(NYSE:BNS) recently reported some solid 2017 annual results, much of which were underpinned by the increasing success of its international banking business. There are signs that Bank of Nova Scotia will report solid results during 2018.
Now what?
The bank’s full-year 2017 net income grew by 12% year over year to $8.2 billion, while its book value shot up by 6%, indicating that its assets continue to grow at a solid rate. The solid bottom line was underpinned by a strong performance from international banking, which continues to benefit from the economic recovery underway in Latin America.
Over the last decade, Bank of Nova Scotia has expanded into Mexico, Colombia, Peru, and Chile, building a sizable operational footprint. The economies of those emerging markets, because of their dependence on mining and the export of commodities, are enjoying a marked uptick in economic activity because of higher metals and oil prices.
Net income from Bank of Nova Scotia’s international operations for 2017 grew by an impressive 13% compared to a year earlier, and that was primarily driven by significantly higher loan volumes. Over the course of the year, residential mortgages expanded by just under 8%, while personal loans shot up by 6.5%.
The division’s return on equity continues to grow, rising by 1.5% year over year for the fourth quarter, while the net interest margin remains at just under 5%, or roughly double that of the bank’s Canadian business.
The good news doesn’t stop there for investors.
Bank of Nova Scotia recently announced that it is seeking to acquire the Chilean subsidiary of Spanish bank Banco Bilbao Vizcaya Argentaria, S.A. (NYSE:BBVA) for $2.9 billion. There are some hurdles that must be overcome for it to be successful, but if it is able to complete the deal, Bank of Nova Scotia will become the third-largest private bank in what is regarded as South America’s most advanced economy. The ongoing improvement in copper prices has been a boon for Chile’s economy, because the orange metal is the Latin American nation’s largest single export.
While Bank of Nova Scotia’s international division is the star of its 2017 results, all of the bank’s businesses performed solidly. Net income from Canadian banking grew by almost 9% and global banking, and markets spiked by an even more impressive 16%.
Importantly, credit quality remains high with impaired loans falling by just over 1% in value, while the value of net impaired loans as a proportion of total loans was 0.43%, or one basis point lower than a year earlier. This coupled with a common equity tier 1 capital ratio or CET of 11.5% highlights the strength of Bank of Nova Scotia’s balance sheet.
The bank’s ongoing strong performance saw it reward investors with another dividend hike for the seventh straight year, giving it a juicy yield of just under 4%.
So what?
Bank of Nova Scotia will keep performing strongly with the economic recovery underway in Latin America a powerful earnings tailwind. Its rock-solid balance sheet and significant growth potential as well as its internationally diversified business make it a must-have stock for every portfolio.
