Scotiabank’s Canadian Banking unit is expected to be a major driver of return-on-equity improvement, according to Aris Bogdaneris, Group Head of Canadian Banking at Bank of Nova Scotia (NYSE:BNS), who outlined key profitability levers, balance sheet priorities, and business trends during a conference discussion.
Canadian Banking ROE levers: mix, margins, fees, and productivity
Bogdaneris said the Canadian bank delivered 18.1% ROE in the first quarter, about 140 basis points higher than a year ago, and emphasized that Canadian Banking is expected to contribute meaningfully to ROE expansion at the enterprise level.
- Business and product mix, including higher non-mortgage loan balances and a greater share of “day-to-day” checking and operating deposits, particularly in small business and commercial.
- Risk-adjusted margins (RAM), supported by stabilizing or potentially rising interest rates, a large mortgage repricing opportunity in 2027, and a gradual normalization of provisions for credit losses (PCLs).
- Fee growth, which he said was strong in the first quarter and is expected to remain double-digit.
- Productivity, with management citing improving signs in recent quarters.
He added that, in his view, mix shift and RAM improvement represent roughly 70% of the overall effort needed to close the ROE gap with peers.
Deposits: retention remains high as balances shift to core and wealth
On deposits, Bogdaneris said maturing term deposits are largely being retained. He stated that about 90% of maturing GIC balances remain within the bank, with flows moving into day-to-day and savings accounts and “more importantly” into wealth products. He framed the trend as a shift away from emphasizing headline deposit growth and toward “qualitative stickiness.”
He said total deposits are down 10% year-over-year, while the most valuable deposits—checking and day-to-day—are up 5%. The approach, he said, is intended to be accretive to ROE and net interest margin (NIM), even as deposit competition remains intense and the overall deposit pool is shrinking.
He also pointed to a tighter linkage with the wealth business. In the first quarter, he said the Canadian bank referred CAD 5.4 billion of retail, small business, and commercial client funds to wealth, up 34% from a year earlier, and described the referral strategy as a way to keep clients served by the “right advisor” and deepen share of wallet over time.
Mortgage repricing tailwind expected in 2027
On risk-adjusted margins, Bogdaneris highlighted a large renewal window in 2027, tied to mortgages originated in 2021 and 2022. He said Scotiabank underwrote many variable-rate mortgages during that period that were challenged from a margin perspective, and he expects repricing at renewal to provide a tailwind to RAM.
Asked about competitive pressures potentially eroding repricing benefits, he cited high retention rates on mortgage renewals and said the bank has been getting “better” at retaining high-quality clients.
Fee income: investments begin to show up in results
Discussing earnings growth, Bogdaneris said the Canadian bank’s first-quarter earnings growth should be viewed in context, noting that in the first three quarters of fiscal 2025 earnings growth was negative, turning positive in the fourth quarter at 1% before reaching 5% in the first quarter. He added that removing one-time private equity gains from the prior year would put first-quarter growth at 8% on an underlying basis.
He attributed the first-quarter fee income uplift to deliberate investments over roughly the past 18 months, including:
- Branch investment specialists: the bank added 240 specialists since Investor Day, a 40% increase, which he said drove CAD 1.2 billion in net mutual fund sales in the first quarter—double the year-ago level—and improved peer ranking in long-term investment sales from sixth to third.
- Cards: investments in a modern card system and new products, with a focus on shifting toward premium clients, which he said is lifting card fees.
- Insurance: ongoing investment that he expects to gradually increase contributions.
- Wealth collaboration: increased referrals from banking to wealth that generate compensation for the Canadian bank.
On the risk of fee compression from fintech entrants and regulatory change, he said his experience in Europe showed the greatest pressure initially on daily banking fees, while he viewed card fees and investment-related fees—areas where Scotiabank is growing—as more insulated.
Costs, auto credit, Tangerine, and commercial growth outlook
On expenses, Bogdaneris said flat year-over-year expense growth is “not sustainable nor desirable,” and management expects low single-digit expense growth longer term. He referenced a prior-quarter charge that reduced head office staffing and simplified “spans and layers,” with some savings redeployed into sales capacity, digital, and technology. He said first-quarter operating leverage was the highest in 14 quarters and that the bank expects positive operating leverage through the year.
In auto lending, he said PCLs are elevated across the industry, but described Scotiabank’s auto portfolio as differentiated by:
- Strong depth of OEM relationships, supporting higher-quality new vehicle originations.
- A focus on automotive assets rather than recreational vehicles such as ATVs.
- Remaining in prime and near-prime rather than moving down the credit curve into subprime.
He also said the bank has not seen auto loan terms being extended and indicated effective terms may be “a little less.”
On unsecured credit, he said PCLs rose in prior quarters in credit cards and unsecured lines of credit. He outlined actions including tightening underwriting for higher-risk cohorts and enhancing collections—adding staff as well as expanding digital outreach and self-serve tools to contact customers earlier. He said delinquency metrics and roll rates are “slowly starting to improve,” while stress remains. He also said premium card products represent 40% of new card acquisition, and that premium balances in the unsecured book are up 10% year-over-year.
Bogdaneris also provided an update on Tangerine, calling it an “incredible asset” with almost CAD 50 billion in deposits. He said the bank is investing to revamp the platform with new technology, including AI-enabled capabilities, and new value propositions across wealth and small business, positioning Tangerine as a full standalone digital bank. He said more details would be unveiled in coming quarters as the business moves toward a “Tangerine 2.0” relaunch.
Finally, he said commercial banking is moving from a “margin enhancement” phase toward growth. He noted that last year, commercial pre-tax, pre-provision profit rose 25% year-on-year under a “value over volume” approach. Looking ahead, he said the pipeline is growing and maturing, sales capacity has been increased in mid-market, and commercial real estate paydowns are nearing an end. He expects commercial balance growth to be more visible in the second half of the year. He also highlighted small business growth nearing double-digit levels, citing new value propositions in areas such as healthcare and professional services.
About Bank of Nova Scotia (NYSE:BNS)
Bank of Nova Scotia, commonly known as Scotiabank, is a Canadian multinational banking and financial services company founded in 1832 and headquartered in Toronto, Ontario. It is one of Canada’s largest banks and provides a broad range of financial services to retail, commercial, corporate and institutional clients. The bank combines a domestic Canadian franchise with an extensive international presence to serve customers across multiple markets.
Scotiabank’s core activities include personal and commercial banking, wealth management, corporate and investment banking, capital markets, and global transaction banking.
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