Bank of Nova Scotia: Hold Rating Confirmed Amid Mixed Performance and Strategic Challenges

Bank of Nova Scotia's operating earnings per share exceeded expectations, driven by lower provisions for credit losses and strong trading results. However, the adjusted return on equity remains below the medium-term target, and the bank's strategic shift towards developed markets may pose challenges. Despite a solid balance sheet, the high dividend payout ratio and cautious management regarding credit quality trends justify a balanced outlook and a Hold rating from BMO Capital and Barclays.

Bank of Nova Scotia (NYSE: BNS) reported mixed third quarter results, with adjusted earnings per share rising 15% year-over-year (YoY), surpassing analyst expectations. The bank's adjusted earnings of C$1.88 per share exceeded estimates of C$1.73 [1]. Revenue reached C$9.49 billion, a 13.4% increase from the same quarter last year, surpassing the consensus forecast of C$9.3 billion [1].

The bank's adjusted return on equity (ROE) improved to 12.4% from 11.3% a year ago, driven by positive operating leverage and improved revenue growth [1]. Global Wealth Management saw adjusted earnings increase 13% YoY to C$427 million, while Global Banking and Markets reported a 29% jump in earnings to C$473 million [1]. International Banking generated adjusted earnings of C$716 million, up 7% YoY, and Canadian Banking’s adjusted earnings decreased slightly by 2% to C$959 million compared to the prior year [1].

Despite the strong performance, the bank's adjusted ROE remains below its medium-term target. Additionally, the bank's strategic shift towards developed markets may pose challenges. The bank maintained a strong capital position with a Common Equity Tier 1 (CET1) capital ratio of 13.3%, an increase of approximately 10 basis points from the previous quarter [1].

Barclays analyst Brian Morton maintained a Hold rating on Bank of Nova Scotia, setting a price target of C$86.00 [3]. CIBC's Paul Holden also issued a Hold rating on August 20 [3]. However, Canaccord Genuity maintained a Buy rating on Bank of Nova Scotia [3].

The bank's high dividend payout ratio and cautious management regarding credit quality trends justify a balanced outlook. The loan to deposit ratio has improved to 104% in Q3 2025, and the net interest income grew 13% year over year. Retail savings and day-to-day deposits are up 6% year over year, and the Mortgage Plus solution continues to drive multi-product banking relationships [2].

References:
[1] https://za.investing.com/news/earnings/bank-of-nova-scotia-beats-estimates-as-third-quarter-earnings-rise-15-93CH-3855615
[2] https://fxdailyreport.com/bank-of-nova-scotia-nysebns-eps-rises-15/
[3] https://www.theglobeandmail.com/investing/markets/stocks/BNS/pressreleases/34442215/barclays-reaffirms-their-hold-rating-on-bank-of-nova-scotia-bns/