Non-performing loans better than industry average

Scotiabank Group is reporting improvement in its credit quality during the last three quarters of its 2021 financial year.

The improvement is such that the banking group’s non-performing loan portfolio is better than the industry average, which is 2.9% of gross loans, whereas Scotia is currently running at 2.7%.

Expected credit losses for the year showed a reduction of $3.3 billion when compared to 2020.

The higher credit losses reflected in the prior period was mainly driven by additional provisions recorded on account of the revised assumptions incorporated in the Group’s impairment methodology stemming from the COVID-19 pandemic.

The Group’s credit quality remains strong and the bank is well provisioned with accumulated credit losses for both its performing and non-performing loans, ensuring adequate coverage for possible future net write offs.

Non-accrual loans as at July 31, 2021 totaled $6.1 billion compared to $4.9 billion for the corresponding period. The Group’s non-accrual loans represent 2.7% of gross loans up from 2.1% as at July 2020 and 1.1% of total assets (July 2020 – 0.9%).

Fully covered non-performing loan provisions

The Group’s aggregate expected credit losses for loans as at July 31, 2021 was $6.2 billion, representing 101.1% coverage of total non-performing loans. Explaining about the overall credit quality at the banking group, Scotiabank Group Chief Financial Officer (CFO), Michelle Wright emphasized that expected credit loss decreased by 3.3 billion or 62 % year over year.

“The primary driver for this is that our IFRS (International Financial Reporting System) 9 mode, which is a futuristic model, which incorporates assumptions regarding macro-economic variables as well as actual performances or expectations on the performance of loan portfolio as well as securities portfolio,” Wright explained.

She added that Scotiabank is now benefitting reducing credit loss provisions and an improvement in loan quality added to the fact that businesses are recovering from the early negative effects of the pandemic.

According to the Scotiabank group CFO, “what we are now benefitting from in terms of 2021 vs. 2020 is given the  pandemic and expectations surrounding the pandemic, we would have taken significant provisions in prior years. However, what we are seeing this year in terms of working with our customers; just having a strategy around the management of our loan portfolio.”

As such she proclaimed that Scotiabank is pleased to report significant reductions in terms of its expected credit losses.