SC's Q3 2025 Earnings Call: Contradictions in Loan Growth, Capital Deployment, and PCL Provisions, and Shareholder Returns

The above is the analysis of the conflicting points in this earnings call

Date of Call: August 26, 2025

Financials Results

• Revenue: Total revenue up 12% YOY; noninterest income $4.0B, up 10% YOY; net interest income up 13% YOY
• EPS: $1.88 (adjusted), up 15% YOY

Guidance:

- Management expects strong earnings growth in 2025, with fuller outlook on the Q4 call.- CET1 to remain comfortably above 13% near term; ongoing NCIB buybacks prioritized after organic growth and credit needs.- Canadian Banking NIM expected to see small sequential improvements barring additional BoC cuts.- International Banking NIM to be stable around 4.45%–4.50% near term.- Canadian Banking targeting positive operating leverage starting next year.- Internal capital generation targeted at 15–20 bps per quarter through 2026.- International Banking and Canadian Commercial pivoting to growth in 2026, focused on wallet share and GTB/cash management.- Corporate/Other losses to stay low and improve with rate cuts.

Business Commentary:

Revenue and Profit Growth:* - Scotiabank reported adjusted earnings of $2.5 billion or $1.88 per share for Q3 2025, up 15% year-over-year, with a return on equity of 12.4%, an increase of 110 basis points from the previous year. - The growth was driven by strong revenue growth of 12% year-over-year, primarily from a higher net interest margin and loan growth.

• Balance Sheet Optimization:
• The loan-to-deposit ratio improved to 104% in Q3 2025, down from 116% in Q4 2022, reflecting better funding metrics.

• This improvement is attributed to strategic capital repositioning, focusing on value over volume and enhanced balance sheet velocity.

• Strong Canadian Banking Performance:

• Canadian Banking reported earnings of $959 million, with a return on equity of 12.6%, up 27 basis points quarter-over-quarter.

• The improvement was driven by better credit performance, improved revenue growth, and strategic client relationship building efforts.

• Global Banking and Markets Growth:

• Global Banking and Markets delivered earnings of $473 million, up 29% year-over-year, with capital markets revenues up 54%.
• Growth was driven by strong trading revenues and advisory fees, reflecting increased noninterest revenue and effective balance sheet optimization.
  

  Sentiment Analysis:

  • “Adjusted earnings of $2.5B or $1.88 per share, up 15% YOY… ROE 12.4%, up 110 bps.” “All-bank NIM expanded 22 bps YOY and 5 bps QOQ.” “PTPP up 17% YOY; sixth straight quarter of positive operating leverage.” “GBM earnings up 29% YOY; capital markets revenues up 54%.” “We expect to deliver strong earnings growth in 2025.”

  Q&A:

  • Question from Ebrahim Huseini Poonawala (BofA Securities): With CET1 at 13.3%, will you be more aggressive on buybacks, and is sub-13% CET1 off-limits?
  • Response: CET1 is strong; buybacks will continue under NCIB but follow organic growth and credit needs; expect to stay comfortably above 13% near term.
  • Question from Ebrahim Huseini Poonawala (BofA Securities): Where has progress lagged across GBM, International, and Canadian Banking, and what bridges the gap?
  • Response: IB is ahead and GBM has strong momentum; Canada improving but focus now is driving commercial/transaction banking-led growth to lift ROE.
  • Question from John Aiken (Jefferies): What’s behind negative credit migration in international commercial—specific regions or sectors?
  • Response: Weakness is mainly in Mexico; Peru and Chile are stable; not seeing trade-related issues there.
  • Question from John Aiken (Jefferies): Credit-card 90-day past due improved—seasonality or stronger consumer?
  • Response: Improvement stems from tighter originations and better collections; consumer health is mixed with stress in younger cohorts.
  • Question from Matthew James Lee (Canaccord Genuity): When can Canadian Banking achieve positive operating leverage, even with muted loan growth?
  • Response: Targeting positive operating leverage next year as tech and digitization investments convert to revenue and productivity gains.
  • Question from Gabriel Dechaine (National Bank Financial): Outlook for the Corporate/Other segment with potential rate cuts; could it move to breakeven?
  • Response: Losses have improved and should stay low; rate cuts help, but goal is stability as funding costs are allocated to business lines.
  • Question from Gabriel Dechaine (National Bank Financial): Is commercial de-banking done and will loans grow; and why the deposit shift?
  • Response: Deselection is largely done; expect market-level commercial loan growth next year; core day-to-day deposits are growing as term balances decline.
  • Question from Doug Young (Desjardins): Impaired PCLs were better; why remain cautious into Q4 and next year?
  • Response: Retail drove improvement (notably auto), but macro and trade uncertainty keep risks elevated; too early to call a sustained trend.
  • Question from Doug Young (Desjardins): What’s a through-the-cycle internal capital generation target?
  • Response: Expect 15–20 bps per quarter through 2026, supported by growth in Wealth and GBM.
  • Question from Paul David Holden (CIBC): Fixed income trading was very strong—how much is sustainable?
  • Response: Quarter benefited from volatility and strong markets; building a more durable, fee-led franchise, but not every quarter will repeat Q3.
  • Question from Paul David Holden (CIBC): Do higher formations signal higher future impaired PCLs?
  • Response: Formations rose in pockets, but they’re being worked through; not expected to drive higher loan losses next year.
  • Question from Jill Elizabeth Glaser Shea (UBS): Should Canadian Banking NIM gains from deposit mix continue; outlook for NIM?
  • Response: Expect modest sequential NIM improvement as mix improves, assuming no further BoC cuts.
  • Question from Jill Elizabeth Glaser Shea (UBS): International Banking NIM is trending better than 4.45–4.50%; outlook?
  • Response: Near-term NIM should stay ~4.45–4.50%; recent uptick included Brazil arbitrage trades; longer-term improvement tied to core deposits.
  • Question from Darko Mihelic (RBC Capital Markets): Status and magnitude of client deselection in International Banking and when growth accelerates?
  • Response: Commercial deselection largely complete; pivot to targeted, segment-led growth in 2026 while maintaining RWA returns via wallet share and GTB.
  • Question from Darko Mihelic (RBC Capital Markets): Are you shifting toward more non-investment-grade exposure?
  • Response: No; growth will not sacrifice returns—focus remains on share-of-wallet and cash management with disciplined capital deployment.
  • Question from Sohrab Movahedi (BMO Capital Markets): Which segment outgrows the other over the next six quarters?
  • Response: International targets 5–7% growth; Canada should see significant NI growth into ’26–’27 from operating leverage and commercial/SMB momentum; Wealth is a key growth glue.