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Canadians are not spending as much as expected because of tariffs imposed by the United States, Bank of Nova Scotia executives said on Tuesday as the lender reported slightly lower profits in its second quarter and missed analysts’ estimates.
The bank said it kept aside a higher amount of money to tackle loans that may potentially go bad as a result of the economic uncertainty.
“We are not seeing the level of spend that we would have probably hoped to,” chief risk officer Phil Thomas said on a conference call. “We are not seeing foreign travel, necessarily. We are also seeing people switch from sort of higher-end to budget groceries. People are being thoughtful.”
He said conversations with mortgage brokers suggest people are a “little bit slower to hit the bid” on a new home because they are not sure about their future employment.
Aris Bogdaneris, head of Scotiabank’s Canadian banking segment, said people are holding more cash instead of investing in mutual funds and being more cautious with their money.
“You are seeing a reduction in general demand to take on debt. You see it in the auto business. You see it in the card,” he said on the call. “You are just seeing hesitation out there; it’s not yet materializing in a lot of additional stress on the delinquencies, but just caution in terms of activity.”
As a result, Scotiabank increased its provisions for credit loss (PCL), or the amount of money banks keep aside to tackle potentially bad loans, to $1.39 billion during the second quarter, up from $1.16 billion in the first quarter and about $1 billion in the same period last year.
Toronto-Dominion Bank also increased its PCLs to $1.3 billion last week when it reported its second-quarter earnings, up from about $1.2 billion in the previous quarter and about $1 billion a year ago.
Canada’s big bank earnings are often considered a signpost for the country’s economy. This is the first time the results will reflect the impact of the tariffs imposed in March by the U.S. on an array of Canadian exports since their earnings cover the three-month period ending April 30.
Due to the uncertainty linked to tariffs, analysts are keeping an eye on the PCLs, which are a key credit metric for measuring the health of a bank’s loan book as well as the ability of households and businesses to pay their debts.
Scotiabank’s slightly lower second-quarter profits were due to the rise in PCLs. Its net income was $2.03 billion, compared to $2.09 billion during the same period a year ago, resulting in net earnings per share of $1.48.
Its adjusted net income — which removes the impact of non-recurring items — was $2.07 billion, compared to $2.10 billion a year ago, resulting in adjusted earnings per share of $1.52, below analysts’ expectations of about $1.54 per share.