By Nichola Saminather and Manya Saini
TORONTO (Reuters) -Bank of Nova Scotia (Scotiabank) kicked off Canadian banks' fourth-quarter results reporting on Tuesday with better-than-expected profits driven by lower provisions, and lifted its divided by 11% with executives saying the bank was comfortable with current allowances despite the new COVID-19 variant.
Canada's third-largest lender announced its first dividend hike in nine quarters, of C$1 a share, becoming the first major bank to do so following the lifting of restrictions by the country's financial regulator this month.
Scotiabank will also buy back 24 million shares, or around 2% of its outstanding shares, it said.
But shares fell 0.6% to C$80.92 in morning trading in Toronto, compared with a 0.5% decline in the benchmark, as earnings excluding the impact of taxes and provisions, particularly in the international business, disappointed.
The broader market was weighed down after a warning from vaccine maker Moderna's chief executive on the effectiveness of COVID-19 shots against the Omicron variant.
Scotiabank took provisions of C$168 million ($131.56 million), down from C$1.1 billion a year ago. Excluding the impact of provisions and taxes, the bank posted adjusted profit of C$3.6 billion, up 4% from a year ago.
For investors looking for Canadian banks to show growth outside of core mortgages, Scotia largely disappointed. While mortgage lending rose sequentially and year or year, credit card, personal and business lending growth, while recovering, remained sluggish, and its net interest margin fell.
Canadian banks and investors have been hoping for an improvement in non-mortgage lending, as earnings beats over past quarters have been driven by home loans and the release of loan-loss reserves set aside last year.
Scotiabank's average non-mortgage loans grew 1.5% from the prior quarter in Canada and 2.8% in the international unit, compared with a 4.9% increase in Canadian home loans and 3.2% overseas.
Canadian mortgage growth is expected to slow in fiscal 2022 as the central bank raises rates, executives said on an analyst call.
Higher fees in Canadian banking and wealth management helped offset weakness in the capital markets unit.
Excluded from the adjusted profit was a pre-tax restructuring charge of C$126 million in international banking to reduce branches and employees. This will be recouped through expense savings in fiscal 2022, executives said on the call.
While net interest income in Canada rose 7% due to stronger lending, margins fell, as loan growth remained skewed to residential mortgages, which have lower rates.
Loan mix also weighed on margins in the international business, despite policy rate hikes in some of Latin American countries.
The bank expects sequential margin expansion next year, particularly in the international business, executives said.
Adjusted profit rose to C$2.10 a share, in the three months ended Oct. 31, compared with C$1.45 a year earlier and analysts' average estimate of C$1.90.
($1 = 1.2770 Canadian dollars)
(Reporting by Nichola Saminather in Toronto and Manya Saini in Bengaluru; Editing by Shinjini Ganguli, Bernadette Baum, Kirsten Donovan and Marguerita Choy)