investor presentation - scotiabank€¦ · earnings mix $2.2b 18.4% 14.9% 11.5% 13.7% canadian...
TRANSCRIPT
Investor Presentation First Quarter 2019
CAUTION REGARDING FORWARD-LOOKING STATEMENTS
Our public communications often include oral or written forward-looking statements. Statements of this type are included in this document, and may be included in other filings with Canadian securities regulators or the U.S. Securities and Exchange Commission, or in other communications. All such statements are made pursuant to the “safe harbor” provisions of the U.S. Private Securities Litigation Reform Act of 1995 and any applicable Canadian securities legislation. Forward-looking statements may include, but are not limited to, statements made in this document, the Management’s Discussion and Analysis in the Bank’s 2018 Annual Report under the headings “Outlook” and in other statements regarding the Bank’s objectives, strategies to achieve those objectives, the regulatory environment in which the Bank operates, anticipated financial results (including those in the area of risk management), and the outlook for the Bank’s businesses and for the Canadian, U.S. and global economies. Such statements are typically identified by words or phrases such as “believe,” “expect,” “anticipate,” “intent,” “estimate,” “plan,” “may increase,” “may fluctuate,” and similar expressions of future or conditional verbs, such as “will,” “may,” “should,” “would” and “could.”
By their very nature, forward-looking statements involve numerous assumptions, inherent risks and uncertainties, both general and specific, and the risk that predictions and other forward-looking statements will not prove to be accurate. Do not unduly rely on forward-looking statements, as a number of important factors, many of which are beyond the Bank’s control and the effects of which can be difficult to predict, could cause actual results to differ materially from the estimates and intentions expressed in such forward-looking statements. These factors include, but are not limited to: the economic and financial conditions in Canada and globally; fluctuations in interest rates and currency values; liquidity and funding; significant market volatility and interruptions; the failure of third parties to comply with their obligations to the Bank and its affiliates; changes in monetary policy; legislative and regulatory developments in Canada and elsewhere, including changes to, and interpretations of tax laws and risk-based capital guidelines and reporting instructions and liquidity regulatory guidance; changes to the Bank’s credit ratings; operational (including technology) and infrastructure risks; reputational risks; the risk that the Bank’s risk management models may not take into account all relevant factors; the accuracy and completeness of information the Bank receives on customers and counterparties; the timely development and introduction of new products and services; the Bank’s ability to expand existing distribution channels and to develop and realize revenues from new distribution channels; the Bank’s ability to complete and integrate acquisitions and its other growth strategies; critical accounting estimates and the effects of changes in accounting policies and methods used by the Bank as described in the Bank’s annual financial statements (See “Controls and Accounting Policies – Critical accounting estimates” in the Bank’s 2018 Annual Report) and updated by quarterly reports; global capital markets activity; the Bank’s ability to attract and retain key executives; reliance on third parties to provide components of the
Bank’s business infrastructure; unexpected changes in consumer spending and saving habits; technological developments; fraud by internal or external parties, including the use of new technologies in unprecedented ways to defraud the Bank or its customers; increasing cyber security risks which may include theft of assets, unauthorized access to sensitive information or operational disruption; anti-money laundering; consolidation in the financial services sector in Canada and globally; competition, both from new entrants and established competitors; judicial and regulatory proceedings; natural disasters, including, but not limited to, earthquakes and hurricanes, and disruptions to public infrastructure, such as transportation, communication, power or water supply; the possible impact of international conflicts and other developments, including terrorist activities and war; the effects of disease or illness on local, national or international economies; and the Bank’s anticipation of and success in managing the risks implied by the foregoing. A substantial amount of the Bank’s business involves making loans or otherwise committing resources to specific companies, industries or countries. Unforeseen events affecting such borrowers, industries or countries could have a material adverse effect on the Bank’s financial results, businesses, financial condition or liquidity. These and other factors may cause the Bank’s actual performance to differ materially from that contemplated by forward-looking statements. For more information, see the “Risk Management” section of the Bank’s 2018 Annual Report.
Material economic assumptions underlying the forward-looking statements contained in this document are set out in the 2018 Annual Report under the headings “Outlook”, as updated by quarterly reports. The “Outlook” sections are based on the Bank’s views and the actual outcome is uncertain. Readers should consider the above-noted factors when reviewing these sections. The preceding list of factors is not exhaustive of all possible risk factors and other factors could also adversely affect the Bank’s results. When relying on forward-looking statements to make decisions with respect to the Bank and its securities, investors and others should carefully consider the preceding factors, other uncertainties and potential events. The forward-looking statements contained in this document are presented for the purpose of assisting the holders of the Bank’s securities and financial analysts in understanding the Bank’s financial position and results of operations as at and for the periods ended on the dates presented, as well as the Bank’s financial performance objectives, vision and strategic goals, and may not be appropriate for other purposes. Except as required by law, the Bank does not undertake to update any forward-looking statements, whether written or oral, that may be made from time to time by or on its behalf.
Additional information relating to the Bank, including the Bank’s Annual Information Form, can be located on the SEDAR website at www.sedar.com and on the EDGAR section of the SEC’s website at www.sec.gov.
TABLE OF CONTENTS
Scotiabank Overview 4
• Canada’s International Bank 5
• Well-Diversified and Profitable Business 6
• Medium-Term Financial Objectives 7
• Why Invest in Scotiabank? 8
• Increasing Scale, Improving Focus 9
• Track Record of Earnings and Dividend Growth 10
• Strong Capital Generation and Position 11
• Progress in Digital Banking 12
• Sustainable Business 13
Appendix 1: Business Line and Financial Overview 14
• Q1 2019 Financial Performance 15
• Canadian Banking 16
• International Banking 23
• Global Banking and Markets 26
• Credit Performance by Business Lines 28
• Wholesale Funding Composition 29
Appendix 2: Key Market Profiles 30
Appendix 3: Canadian Housing Market 38
Appendix 4: Additional Information 45
Contact Information 47
Scotiabank Overview
50%
8%
26%
9% 7%
Canada’s International Bank Top 10 Bank in the Americas1,2
5 LEADING BANK IN THE AMERICAS
Full-Service
Canada • Mexico
Peru • Chile
Colombia • Caribbean
Uruguay
Wholesale Operations
USA • UK • Hong Kong
Singapore • Australia
Ireland • China • Brazil
South Korea • Malaysia
India • Japan
Earnings by Geography3,6,7
Scotiabank3
FY
Q1 2019
Change
Y/Y
Revenue $7.6B +7%
Net Income4 $2.3B +4%
Return on Equity 13.7% (260bps)
Operating Leverage4 (4.3%) n.a.
Productivity Ratio 54.1% 220bps4
Total Assets $1.0T 12.0%
Ranking by Market Share5
Canada #3
USMCA USA Top 10 Foreign Bank
Mexico #6
Peru #3 Chile #3
Colombia #5
Americas 7th largest bank by assets1
10th largest bank by market capitalization1
Europe
Asia
1 Source: Bloomberg 2/24/19; 2 By assets and market capitalization; 3 Figures adjusted for Acquisition-related costs, including integration and amortization costs related to current acquisitions, and amortization of intangibles related to current and past acquisitions; 4 Exclude employee benefits re-measurement credit of $203MM pre-tax, $150MM after-tax in Q1/18; 5 Ranking based on market share in loans as of December 2018 for PACs, as of November 2018 in Canada for publically traded banks; 6 For the three months ended January 31, 2019; 7 Excluding Corporate adjustments
Canada
U.S.A
PAC
Other
C&CA
PAC
Americas (>90%)
2018 Bank of the Year
Latin America and the
Caribbean by LatinFinance
#4
in PAC
Canada
50%
U.S.
8%
Mexico
8%
Peru
10%
Chile
6%
Colombia
2%
C&CA*
9%
Other
7%
6
Well-Diversified and Profitable Business
GREATER SCALE, GREATER FOCUS
Earnings by Business1,2,3 Earnings by Geography1,2,3
1 For the three months ended January 31, 2019; 2 Adjusted for Acquisition-related costs, including integration and amortization costs related to current acquisitions, and amortization of intangibles related to current and past acquisitions 3 Excluding Corporate adjustments
Diversified by business and by geography, creating stability and lowering risk
Canadian
Banking
49%
EARNINGS MIX
$2.2B
Canadian Banking
P&C
39%
International
Banking
36%
Global Banking and
Markets
15%
Canadian Wealth
Management
10%
EARNINGS MIX
$2.2B
18.4% 14.9%
11.5% 13.7%
Canadian Banking International Banking Global Banking andMarkets
All Bank
* Caribbean and Central America
7
Medium-Term Financial Objectives1
METRICS OBJECTIVES Q1/19 RESULTS2
(Y/Y Change)
ALL BANK
EPS Growth3 7%+ -
ROE 14%+ 13.7%
Operating Leverage3 Positive (4.3%)
Capital Strong Levels 11.1%
Dividend Payout Ratio 40%-50% 48.5%
BUSINESS LINE
CANADIAN BANKING
Net Income Growth 7%+ (2%)
Productivity Ratio <49% 50.0%
INTERNATIONAL BANKING
Net Income Growth4 9%+ +18%
Productivity Ratio <51% 51.1%
13-5 year objectives. 2Adjusted for Acquisition-related costs, including integration and amortization costs related to current acquisitions, and amortization of intangibles related to current and past acquisitions; 3 Exclude employee benefits re-measurement credit of $203MM pre-tax, $150MM after-tax in Q1/18; 4 On a constant dollar basis
Why Invest in Scotiabank?
8
Canada’s international bank
and a top 10 bank in the
Americas
Diversified exposure to high
quality growth markets
Increasing scale and market
share in key markets
• Leading bank in the Pacific Alliance growth markets of Mexico, Peru, Chile and Colombia – a region of 230 million people with an under-banked market and a median age of 29
• Earnings momentum in personal & commercial, wealth, and wholesale businesses
• Gaining market share in key markets of Canada and the Pacific Alliance countries
• Top 3 bank in Canada, Chile and Peru
• Increasing scale in Wealth and Pacific Alliance with $7B of strategic acquisitions in 2018
• Unique footprint that provides sustainable and growing earnings and dividends
• Strong balance sheet, capital and liquidity ratios
• Attractive dividend yield and long-term shareholder returns
• Approximately 80% of earnings from core personal and commercial banking businesses
• Exited over 20 non-core countries and businesses since 2014
• Strong Canadian risk management culture – building stronger capabilities for AML, cyber and reputational risk
Improving quality of earnings
while reducing risk profile
• Leading levels of technology investment supports digital banking strategy. Increasing digital sales adoption with clear targets
• Well positioned in the Pacific Alliance to leverage technology, risk management and funding versus local and global competitors
• Named to Top 25 ”World’s Best Workplaces” (2018)
Enhancing competitive
advantage in technology
and talent
Canada Increases wealth management assets to $230B.
Adds 110,000 potential primary customers.
Chile Doubles market share. Creates 3rd largest bank.
Peru Creates #2 bank in credit cards.
Colombia Creates market leader in credit cards.
Dominican
Republic Doubles customer base. Creates 4th largest bank.
9
Increasing Scale, Improving Focus1 Gaining scale in key markets to drive earnings growth, improve earnings quality and reduce risk
INCREASING SCALE, IMPROVING FOCUS
Gaining Market Share (Total Loans)
Reducing Risk Profile Improving Earnings Quality
Increasing Scale with Strategic Acquisitions (2017-2019)
Increased wealth AUM by 37% to $282B in 2018.
Targeting earnings contribution to All-Bank earnings
from
12% to 15% • Reduced wholesale funding (% of assets) from 29.6% to 23.9%
• Reduced asset exposure in Asia by 21%
Canada
Mexico
Chile
Peru
Colombia
2013 2019
54 countries 36
countries
Between 2013 and 2019, exited
18 countries with either low
returns, small scale or higher
operational risk:
Turkey • Russia • Haiti • Egypt
Taiwan • UAE • plus 12 others
Exited 6 non-core businesses
2013
2018
0 2 4 6 8 10 12 14 16 18 20
1 5-year period 2013-2018
8.6%
14.4%
12.0% 11.8%
16.7%
11.1%
5 Year 10 Years 20 Years
$1.92
$3.28
08 09 10 11 12 13 14 15 16 17 18
Strong Track Record of Earnings and Dividend Growth
1 Reflects adoption of IFRS in Fiscal 2011 2 Excludes notable items for years prior to 2016. For 2016 onwards, results adjusted for acquisition-related costs including Day 1 PCL impact on acquired performing loans, integration and amortization costs related to current acquisitions and amortization of intangibles related to current and past acquisitions. 3 As of January 31, 2019
Stable and predictable earnings with steady increases in dividends
10
Earnings per share (C$)1,2
$3.05
$7.11
08 09 10 11 12 13 14 15 16 17 18
Dividend per share (C$)
+9%
CAGR
+6%
CAGR
Total shareholder return3
Scotiabank Big 5 peers (ex. Scotiabank)
INCREASING SCALE, IMPROVING FOCUS
11
CET1 Ratio
Strong Capital Levels
11.2% 12.0% 11.4% 11.1% 11.1%
1.5% 1.5%
1.4% 1.4% 1.4%
1.9% 1.8%
1.7% 1.8% 2.1%
Q1/18 Q2/18 Q3/18 Q4/18 Q1/19
CET1 Tier 1 Tier 2
14.3% 14.6% 14.6% 15.3%
Strong Capital Generation and Position Capital levels are well above minimum regulatory requirements. CET1 >11%.
14.5%
11.1% +28 bps -12 bps -9 bps -3 bps 11.1% +10 bps
11.2%
Q4/18 Internal CapitalGeneration
RWA Impact(ex. FX)
Pensions Shareissuance /(buybacks)
(net)
OtherIncluding FX
Q1/19 Net Impact ofAnnounced
Acquisitions &Divestitures
Q1/19 Pro-Forma
-4 bps
12
Progress in Digital Banking Steady and continual increase in digital banking
Digital Retail Sales1
Goal
>50%
Digital Adoption2
Goal
>70%
In-Branch Financial Transactions3
Goal
<10%
11
15
22 25
F2016 F2018 F2017 Q1/19
+14%
26 29
33 33
F2017 F2016 F2018 Q1/19
+7%
26 23
20 18
F2017 F2016 F2018 Q1/19
-8%
1 Canada: F2017 22%, F2018 26%, Q1/19 28% PACs: F2017 13%, F2018 19%, Q1/19 24% 2 Canada: F2017 36%, F2018 38%, Q1/19 39% PACs: F2017 20%, F2018 26%, Q1/19 27% 3 Canada: F2017 17%, F2018 15%, Q1/19 13% PACs: F2017 29%, F2018 24%, Q1/19 22%
• Strong progress made
in all five key markets
across various product
suites including
deposits, personal
loans, insurance, etc.
• Adoption grew
400bps against
Q1/18; stable
compared to year
end
• In-branch
transactions
continued to decline
at a steady pace
13
RECOGNITION,
MEMBERSHIPS &
ASSOCIATIONS
Our Priorities
Our Achievements
We have
the resources
We have
financial expertise
We have
the reach
98,000+ employees
25 Million+ customers
around the globe
>$1 Trillion in assets
Trust Climate Change Economic Inclusion Young People
38% of Board Directors are women
Placed in top 1% of Dow Jones Sustainability Index for corporate governance
practices compared to global finance institutions
Scotia Global Asset Management became a
signatory to the UN Principles for Responsible
Investment
Provided $8.5 Billion in financing to the renewable
energy sector
Internal Carbon Price set at
$15/tonne CO2 reinvested in energy efficiency initiatives
34% women in leadership positions (VP+) globally in 2018
Joint Lead Manager on $1 Billion World Bank Sustainable Development
Bond to support women and youth
Launched Scotiabank Women Initiative to help advance women-led businesses
in Canada through access to capital, mentorship by senior business leaders
and education
900,000+ Canadian students
participated in Talk With Our Kids About
Money day in 2018
$80 Million in donations globally in 2018 to support the
communities we operate in; 70%
directed at youth
Our Ability
Sustainable Business
Business Line and
Financial Overview
Appendix 1:
15
Q1 2019 Financial Performance Strong revenue and balance sheet growth
$MM, except EPS Q1/19 Y/Y Q/Q
Reported
Net Income $2,247 (4%) (1%)
Diluted EPS $1.71 (8%) -
Revenue $7,604 +7% +2%
Expenses $4,171 +19% +3%
Productivity Ratio 54.9% +550bps +30bps
Core Banking Margin 2.45% (1bp) (2bps)
PCL Ratio1 47bps +5bps +8bps
PCL Ratio on Impaired Loans1 47bps +4bps +5bps
Adjusted2
Net Income $2,291 (3%) (2%)
Diluted EPS $1.75 (6%) (1%)
Expenses $4,110 +18% +4%
Productivity Ratio 54.1% +500bps +80bps
YEAR-OVER-YEAR HIGHLIGHTS
• Adjusted Net Income down 3%2
• Excluding pension revaluation benefit,
diluted EPS was in-line with last year
• Revenue up 7%
o Mostly relating to acquisitions
o Net interest income up 9%
o Non-interest income up 6%
• Expenses up 18%2
o Acquisitions and the prior year’s benefits re-
measurement contributed to approximately two-
thirds of the expense growth
o Remaining growth due to technology, regulatory
initiatives, share-based payments, other business
growth expenses
• PCL ratio1 on impaired loans up 4 bps
1 Provision for credit losses on certain assets – loans, acceptances and off-balance sheet exposures 2 Adjusted for Acquisition-related costs, including integration and amortization costs related to current acquisitions, amortization of intangibles related to current and past acquisitions
DIVIDENDS PER COMMON SHARE
0.79 0.82 0.82 0.85 0.85
+0.03 +0.03 +0.02
Q1/18 Q2/18 Q3/18 Q4/18 Q1/19
Announced Dividend Increase
56%
26%
18%
61%
21% 16%
2%
• Improved productivity towards our <49% productivity ratio target (<45% ex Wealth) by 2020 supported by higher revenue growth and mid-dingle digit expense growth.
• Integration of our recent acquisitions in Wealth: MD Financial Management ($49B AUM) and Jarislowsky Fraser ($40B AUM)
• Leverage data analytics for prudent growth in higher margin credit card and small business banking
• Increase core deposits; increase primary customers towards our 1 million new primary customer goal
• Canadian Banking provides a full suite of financial advice and banking solutions, supported by an excellent customer experience, to Retail, Small Business, Commercial Banking, and Wealth Management customers
16
Canadian Banking Top 3 bank in personal & commercial banking, wealth and insurance in Canada
STRATEGIC OUTLOOK
REVENUE MIX1
Retail
Wealth
Commercial
Personal
Loan Business and
Government Loans
AVERAGE LOAN MIX1
$3.4B $342B
Residential
Mortgages
1 For the three months ended January 31, 2019; 2 3-5 year target; 3 Adjusted for Acquisition-related costs, including integration and amortization costs related to current acquisitions, amortization of intangibles related to current
and past acquisitions and the Day 1 PCL impact on acquired performing loans in Q3/18; 4 Reflects adoption of new accounting standard, IFRS 15; 5Attributable to equity holders of the Bank
Credit Cards
MEDIUM-TERM FINANCIAL OBJECTIVES
Target2 Q1/191,3,4
Net Income Growth5 7%+ (2%)
Productivity Ratio <49% 50.0%
CB ex Wealth <45% 45.7%
Wealth <65% 63.4%
New Primary Customers +1MM +210,000
2.41% 2.43% 2.46% 2.45% 2.44%
17
Canadian Banking Financial Performance Strong deposit growth and higher NIM
1,107 1,022 1,141 1,146 1,089
Q1/18 Q2/18 Q3/18 Q4/18 Q1/19
ADJUSTED NET INCOME1,3 ($MM) AND NIM (%)
• Adjusted Net Income down 2%3
o Lower real estate gains and prior year Interac gain
reduced net income by 4%
o Higher PCLs related to one commercial account
o Includes the impact of acquisitions
o Asset and deposit growth, margin expansion
• Revenue up 3%
o Includes impact of acquisitions
o Net interest income up 5%
• Loan growth of 4%
o Business loans up 10%
o Residential mortgages up 3%; credit cards up 7%
• Deposit growth of 9%
o Personal up 7%; Non-Personal up 12%
• NIM up 3 bps
o Primarily driven by the impact of prior rate increases
• Expenses up 7%3
o Includes impact of acquisitions
o Investments in technology and regulatory initiatives
• PCL ratio2 up 2 bps to 27 bps
FINANCIAL PERFORMANCE AND METRICS ($MM)1
YEAR-OVER-YEAR HIGHLIGHTS
1 Attributable to equity holders of the Bank 2 Provision for credit losses on certain assets – loans, acceptances and off-balance sheet exposures 3 Adjusted for Acquisition-related costs, including integration and amortization costs related to current acquisitions, and amortization of intangibles related to current and past acquisitions
Q1/19 Y/Y Q/Q
Reported
Revenue $3,415 +3% (1%)
Expenses $1,730 +8% (1%)
PCLs $233 +11% +18%
Net Income $1,073 (3%) (4%)
Productivity Ratio 50.6% +200bps (10bps)
Net Interest Margin 2.44% +3bps (1bp)
PCL Ratio2 0.27% +2bps +4bps
PCL Ratio on Impaired Loans2 0.27% - +5bps
Adjusted3
Expenses $1,709 +7% -
Net Income $1,089 (2%) (5%)
Productivity Ratio 50.0% +160bps +50bps
18
Canadian Banking: Retail Exposures High quality retail loan portfolio: ~93% secured
1 LTV calculated based on the total outstanding balance secured by the property. Property values indexed using Teranet HPI data.
DOMESTIC RETAIL LOAN
BOOK
79%
3% Credit Cards
5% Unsecured
13% Automotive
Real Estate
Secured Lending
$287.4B
• Residential mortgage portfolio is high quality
o 42% insured, and the remaining 58% uninsured has a LTV of 55%1
• Market leader in auto loans
o $37 billion auto loan portfolio with 7 OEM relationships (3 exclusive)
o Prime Auto and Leases (~91%)
o Lending tenor has been relatively stable with contractual terms for new originations averaging 78 months with projected effective terms of 55 months
• Growth opportunity in credit cards
o $7.4 billion credit card portfolio represents ~3% of domestic retail loan book and 1.3% of the Bank’s total loan book
o Organic growth strategy focused on payments and deepening customer relationships
o Upside potential from existing customers: ~80% of growth is from existing customers (penetration rate mid-30s and trending up versus peers in the low-40s)
o Strong risk management culture with specialized credit card teams, customer analytics and collections focus
$96.6
$29.8 $27.2 $14.2 $11.1 $8.8
$12.6
$9.5 $3.6
Ontario BC & Territories Alberta Quebec Atlantic Provinces Manitoba &Saskatchewan
19
Canadian Banking: Residential Mortgages High quality, diversified portfolio
1 LTV calculated based on the total outstanding balance secured by the property. Property values indexed using Teranet HPI data
2 New originations defined as newly originated uninsured residential mortgages and have equity lines of credit, which include mortgages for purchases refinances with a request for additional funds and transfer from other financial institutions
CANADIAN MORTGAGE PORTFOLIO: $216B (SPOT BALANCES AS AT Q1/19, $B)
% of
portfolio 50.5% 18.1% 14.3% 7.4% 5.3% 4.4%
$1.8 $0.2
$0.7
Freehold - $188B Condos - $28B $109.2
$39.2 $30.8
$16.0 $11.3 $9.5
42%
58% Uninsured
Total
Portfolio:
$216 billion
Insured
• Residential mortgage portfolio of $216 billion: 42% insured; LTV 55% on the uninsured book1
o Mortgage business model is “originate to hold”
o New originations2 had average LTV of 64% in Q1/19
o Majority is freehold properties; condominiums represent approximately 13% of the portfolio
• Three distinct distribution channels: All adjudicated under the same standards
o 1. Broker (~59%); 2. Branch (~20%); and 3. Mobile Salesforce (~21%)
20
Canadian Banking: Residential Mortgages (continued) High quality portfolio, lower originations in Vancouver and Toronto
Q1/18 Q4/18 Q1/19 Growth/Change
Y/Y
Canada Total Originations ($B) 10.3 10.5 9.3 -10%
Uninsured LTV 64% 63% 64% -
GTA Total Originations ($B) 3.4 3.2 3.2 -6%
Uninsured LTV 63% 62% 63% -
GVA Total Originations ($B) 1.5 1.1 1 -33%
Uninsured LTV 62% 59% 59% -3%
*Average LTV ratios for our uninsured residential mortgages originated during the quarter
4% 12% 12%
16%
56%
< 635 636 - 706 707 - 747 748 - 788 > 788
Average FICO® Score
Canada 787
GTA 789
GVA 791
FICO is a registered trademark of Fair Isaac Corporation 1 FICO ® distribution for Canadian uninsured portfolio based on score ranges at origination
• <0.70% of uninsured portfolio has a
FICO® score of <620 and an LTV >65%
• Canadian uninsured mortgage portfolio
is $124 billion as at Q1/2019
GTA
63%
ON
64%
QC
66%
Prairies 67%
GVA
59%
BC &
Territories
61%
Atlantic
Provinces
68%
NEW ORIGINATIONS UNINSURED LTV* DISTRIBUTION
FICO® DISTRIBUTION – CANADIAN UNINSURED PORTFOLIO1
• Provide personal and commercial dealer financing solutions, in partnership with seven leading global automotive manufacturers in Canada
• Portfolio grew 2%1 year-over-year
o Personal up 4%, Commercial down 7%
21
Automotive Finance Canada’s leader in automotive finance
1 For the three months ended January 31, 2019; 2 Data as at Oct 2018; 3 CBA data, includes BMO, CIBC, HSBC, National Bank, RBC, Scotiabank, TD; 4 DealerTrack Portal data, includes all Near-Prime Retail providers on DealerTrack Portal; 5
Includes BMO, CIBC, RBC, Scotiabank, TD, HSBC, Canadian Western Bank, Laurentian Bank 6 based on IFRS 9; 7 Provision for credit losses on certain assets – loans, acceptances and off-balance sheet exposures
37%
63%
Market Share2
29%
71%
29%
71%
Prime Retail Market Share3 Near-Prime Retail Market Share4 Commercial Floorplan Market Share5
Exclusive Relationships
Semi-Exclusive Relationships*
* 1 to 2 other financial institutions comprise Semi-Exclusive relationships
MAZDA VOLVO JAGUAR LANDROVER
HYUNDAI CHRYSLER TESLA GM 80%
8%
12%
AVERAGE ASSET MIX
$42.1B1
100% Secured
Commercial
Near-Prime Retail
Prime Retail
STRATEGIC FOCUS:
Simplicity
22
Tangerine Canada’s #1 Digital Bank
• Simple, market-leading products that appeal to value-
conscious and tech-savvy Canadians
• Seamless digital client experience
• Highly competitive rates, simple products
• Velocity
• Enhanced self-service options, adding speed & agility
• Nimble, modern platform supporting rapid development cycles
• Low cost, scalable business model
Rapid Deployments:
Agile best practices enable
quick & efficient new product &
feature delivery.
Incubator:
Identify, explore, and pilot new
technologies and solutions to
meet evolving Client needs.
Scalable:
Nimble, low cost systems
provide a holistic client view.
Third-Party Recognition:
J.D. Power Customer Satisfaction
seven years in a row, Finovate “Best
in Class” for digital experiences.
Modern Platform Speed & Agility Client-Driven Innovation Unique ‘Orange’ Culture Award Winning Approach
Team Tangerine:
Our unique culture and
lean team are an essential
part of how we deliver.
Partnerships
• Accelerating momentum through the Toronto Raptors
• Deepening client relationships by introducing SCENE Loyalty
• Strong partnership with Scotiabank
• 2.3 million customers
• Industry-leading customer
service (NPS)
• <7-minute account sign-up
• 97% digital transactions
• 96% digital onboarding
• 90% digital sales
• International Banking operates primarily in Latin America, the Caribbean and Central America with a full range of personal and commercial financial services, as well as wealth products and solutions
23
International Banking Leading diversified personal and commercial franchise in high quality growth markets
STRATEGIC OUTLOOK
MEDIUM-TERM FINANCIAL OBJECTIVES
71% 25%
4%
REVENUE1
$3.3B
Asia
C&CA Latin America
24% Mexico
25% Peru
26% Chile 18%
Colombia
7% Other Latin
America
51%
27%
16%
6% LOAN MIX1
$149B Credit
Cards
Personal
Loans Residential
Mortgages
Business
Loans
• Integration of acquisitions in Chile and Colombia. Close announced acquisitions in Peru and Dominican Republic
• Closing of dispositions of non-core operations in smaller Caribbean markets, Dominican Republic and El Salvador
• Margins (NIM ~450 bps) and credit quality are expected to remain stable with the level in Q1/19
• Maintain positive operating leverage
Target2 Q1/193,4
Net Income Growth5 9%+ 18%
Productivity Ratio <51% 51.1%
Operating Leverage Positive +4.2%
1 For the 3 months ended January 31, 2019; 2 3-5 year target; 3 Adjusted for Acquisition-related costs, including integration and amortization costs related to current acquisitions, amortization of intangibles related to current and past acquisitions; 4 Y/Y growth rates (%) are on a constant $ basis; 5Attributable to equity holders of the Bank
24
International Banking Financial Performance Strong performance across the Pacific Alliance
4.66% 4.74% 4.70% 4.52% 4.52%
Q1/19 Y/Y Q/Q
Reported
Revenue $3,331 +22% +6%
Expenses $1,742 +20% +1%
PCLs $470 +37% +14%
Net Income $782 +16% +10%
Productivity Ratio 52.3% (100bps) (260bps)
Net Interest Margin 4.52% (14bps) -
PCL Ratio3 1.28% +2bps +23bps
PCL Ratio on Impaired Loans3 1.23% (2bps) +3bps
Adjusted5
Expenses $1,702 +18% +2%
Net Income $805 +18% +8%
Productivity Ratio 51.1% (180bps) (190bps)
675 683 715 746
805
Q1/18 Q2/18 Q3/18 Q4/18 Q1/19
YEAR-OVER-YEAR HIGHLIGHTS2
• Adjusted Net Income up 18%5
o Includes impact from alignment of reporting period in
Peru which contributed 6%
o Strong asset and deposit growth across the Pacific
Alliance
• Revenues up 22%
o Includes impact of acquisitions
o Pacific Alliance up 31% includes impact of acquisitions
• Loans up 29%
o Pacific Alliance up 44% includes impact of Chile and
Colombia acquisitions
• NIM down 14 bps
o Driven by the business mix impact of acquisitions (BBVA
Chile)
• Expenses up 18%5
o Includes impact of acquisitions
o Business volume growth and inflation
o Productivity ratio improvement of 180bps5
• Positive operating leverage of 4.2%5
• PCLs ratio reflects stable credit quality 1 Attributable to equity holders of the Bank 2 Y/Y and Q/Q growth rates (%) are on a constant dollars basis, while metrics and change in bps are on a reported basis 3 Provision for credit losses on certain assets – loans, acceptances and off-balance sheet exposures 4 Net Interest Margin is on a reported basis 5 Adjusted for Acquisition-related costs, including integration and amortization costs related to current acquisitions, and amortization of intangibles related to current and past acquisitions
ADJUSTED NET INCOME1,5
($MM) AND NIM5 (%)
FINANCIAL PERFORMANCE AND METRICS ($MM)1, 2
25
Scotiabank in the Pacific Alliance Countries Well positioned for long-term growth in large, growing market
Highlights of Pacific Alliance countries (PACs)
Population1,2 • 230 million. 6.2x Canada’s population. Superior growth versus other EM3 and G7 countries; median age4 of 29
Government
Presidential Elections • No elections scheduled until 2021
Financial Stability • All sovereign credit ratings in IG category with central banks’ policy targeting inflation since 1999
Economy
GDP1 • 9th largest economy in the world
Exports5 • 64% of exports related to manufacturing
Trade Partners5 • US, China and Canada are the PACs’ largest trading partners, representing 72% of exports
Business Environment
HDI Score Rank6 • Rank “High” or “Very High” (United Nations, 2017)
Banking Penetration1 • Under-banked with average banking penetration at ~50% compared to over 90% in Canada and the U.S.
Foreign Direct Investment1 • FDI averaging 3.2% of GDP compared to 1.7% in Canada and the U.S.
Mexico Peru Chile Colombia
PACs
(Total/Average)
Scotiabank Market Share7 7.1% 17.7% 14.0% 6.2% 11.5%
Market Share Ranking7 6th 3rd 3rd 5th 4th
Strengths Auto and mortgages P&C and Mortgages P&C and Mortgages Credit Cards, Personal Broad P&C platform
Average Total Loans8(C$B) $28 $21 $46 $12 $106
Revenue9(C$B) $0.6 $0.6 $0.6 $0.4 $2.2
Net Income after NCI9,10(C$MM) $182 $212 $135 $39 $567
ROE9,10 25% 28% 9% 10% 16%
# of Employees11,12 13,214 11,080 9,257 9,689 43,240
1 Source: World Bank 2017 2 Population growth: World Bank DataBank 2017-2022 3 EM countries include: Argentina, Brazil, China, Greece, India, Indonesia, Poland, South Africa, Turkey, and Russia 4 Source: The World Factbook, CIA 2017
5 Source: United Nation Conference on Trade and Development (UNCTAD) 2017; Organization for Economic Co- operation and Development (OECD) 2016 6 Human Development Index. Source: United Nations Development Programme (UNDP) 2017. For more information,
please refer to: http://hdr.undp.org/sites/default/files/2018_human_development_statistical_update.pdf 7 Ranking based on publicly traded banks by total loans market share as of December 2018
8 Average loan balances over Q1/19 9 For the quarter ended January 31, 2019 10 Earnings adjusted for acquisition –related costs including integration and amortization costs related to current acquisitions, and amortization of intangibles related to current and past acquisitions 11 Employees are reported on a full-time equivalent basis 12 As of January 31, 2019
42%
42%
10%
6%
GEOGRAPHIC REVENUE1
$1.1B
• Full-service wholesale bank in Canada, the United States and Latin America. Offers a range of products and services in select markets in Europe, Asia and Australia.
26
Global Banking and Markets Second-largest Canadian wholesale banking and capital markets business serving global clients
STRATEGIC OUTLOOK
Europe
Canada
US
Asia 34%
24%
18%
14%
10%
TRADING RELATED
REVENUE (TEB)1,2
$479MM
Commodities
Interest Rate
& Credit
Foreign
Exchange
Equities
60%
24%
16% REVENUE
BY BUSINESS LINE1
$1.1B
Business Banking
FICC
Global Equities
• Up-tiering lending relationships, expanding our Investment Banking capabilities in key markets, increasing our investment in the Pacific Alliance to become a leader in local and cross-border banking and capital markets
• Continued strong growth in deposits, improved corporate lending and investment banking results to absorb required regulatory and technology investments
1For the 3 months ended January 31, 2019; 2 All-Bank trading-related revenue
Other
27
Global Banking and Markets Financial Performance Market volatility negatively impacted results
454 447
441
416
416
Q1/18 Q2/18 Q3/18 Q4/18 Q1/19
335
FINANCIAL PERFORMANCE AND METRICS1 ($MM) YEAR-OVER-YEAR HIGHLIGHTS
• Reported Net Income down 26%
• Revenue down 10%
o Non-interest revenue down by 12% due to lower fixed income trading, partly offset by higher equity trading and fee income
• NIM down 23 bps
o Mainly driven by lower lending margins and loan origination fees
• Loans up 15%
o Strong corporate growth across Canada and the U.S.
• Expenses up 13%
o Higher regulatory and technology investments
• PCL ratio2 improved by 3 bps to (7 bps)
o Improving credit quality in oil and gas portfolio
1 Attributable to equity holders of the Bank 2 Provision for credit losses on certain assets – loans, acceptances and off-balance sheet exposures
NET INCOME1 AND ROE
Q1/19 Y/Y Q/Q
Revenue $1,075 (10%) -
Expenses $645 +13% +17%
PCLs ($16) N/A N/A
Net Income $335 (26%) (20%)
Productivity Ratio 60.0% +1200bps +850bps
Net Interest Margin 1.80% (23bps) +8bps
PCL Ratio2 (0.07%) (3bps) +2bps
PCL Ratio on Impaired Loans2 (0.01%) - +6bps
16.2% 16.9% 15.6% 15.3%
11.5%
28
Credit Performance by Business Lines Stable underlying credit
Q1/18 Q2/18 Q3/18 Q4/18 Q1/19
(As a % of
Average Net Loans &
Acceptance)
PCLs on
Impaired
Loans
Total
PCLs
PCLs on
Impaired
Loans
Total
PCLs
PCLs on
Impaired Loans
Total
PCLs
(adj)
PCLs on
Impaired Loans
Total
PCLs
PCLs on
Impaired Loans
Total
PCLs
Canadian Banking
Retail 0.29 0.28 0.28 0.28 0.25 0.24 0.25 0.25 0.28 0.28
Commercial 0.11 0.08 0.09 0.09 (0.04) 0.06 0.06 0.15 0.21 0.23
Total 0.27 0.25 0.25 0.25 0.21 0.21 0.22 0.23 0.27 0.27
International Banking
Retail 2.28 2.39 2.26 2.16 2.36 2.253 2.38 2.21 2.33 2.36
Commercial 0.28 0.201 0.55 0.341 0.38 0.311, 3 0.07 (0.06) 0.19 0.26
Total 1.252 1.261, 2 1.382 1.221, 2 1.33 1.234 1.20 1.05 1.23 1.28
Global Banking and Markets (0.01) (0.04) 0.02 (0.05) (0.06) (0.05) (0.07) (0.09) (0.01) (0.07)
All Bank 0.43 0.42 0.46 0.42 0.41 0.40 0.42 0.39 0.47 0.47
1 Excludes provision for credit losses on debt securities and deposit with banks 2 Not comparable to prior periods, which were net of acquisition benefits 3 On an adjusted basis; adjusted for Day 1 PCLs from acquisitions
29
Wholesale Funding Wholesale funding diversity by instrument and maturity1,6,7
$247B
1 Excludes repo transactions and bankers acceptances, which are disclosed in the contractual maturities table in the MD&A of the Interim Consolidated Financial Statements. Amounts are based on remaining term to maturity. 2 Only includes commercial bank deposits raised by Group Treasury. 3 Excludes asset-backed commercial paper (ABCP) issued by certain ABCP conduits that are not consolidated for financial reporting purposes. 4 Represents residential mortgages funded through Canadian Federal Government agency sponsored programs. Funding accessed through such programs does not impact the funding capacity of the Bank in its own name. 5 Although subordinated debentures are a component of regulatory capital, they are included in this table in accordance with EDTF recommended disclosures. 6 As per Wholesale Funding Sources Table in MD&A, as of Q1/19. 7 May not add to 100% due to rounding.
34%
9% Mortgage
Securitization4
Bearer Deposit Notes, Commercial Paper &
Short-Term Certificate of Deposits
3%
Asset-Backed Commercial Paper3
34% Senior Notes
12% Covered Bonds
4% Subordinated Debt5
$21
$17
$12
$15
$5
$15
$1
$1
$1
$4
$4
$11 $3
$6
$2
< 1 Year 2 Years 3 Years 4 Years 5 Years 5 Years >
MATURITY TABLE (EX-SUB DEBT)
(CANADIAN DOLLAR EQUIVALENT, $B)
Senior Debt ABS Covered Bonds
$26
$23 $24
$19
$11
$17 $3
1% Bail-inable Notes
2% Asset-Backed
Securities
1% Deposits from Banks2
Key Market Profiles
Appendix 2:
31
Economic Outlook in Key Markets Growth in Pacific Alliance expected to remain above that of Canada and the U.S.
2018 AND 2019 REAL GDP GROWTH FORECAST (%)
Source: Scotiabank Economics. Forecasts as of February 7, 2019.
Real GDP (Annual % Change)
Country 2000–17 avg. 2018e 2019f 2020f
Mexico 2.2 2.0 1.4 1.3
Peru 5.0 3.6 4.0 4.0
Chile 3.9 4.2 3.2 3.2
Colombia 3.9 2.6 3.4 3.8
PACs simple avg. 3.8 3.1 3.0 3.1
2000–17 avg. 2018e 2019f 2020f
Canada 2.1 2.0 1.8 2.0
U.S. 2.0 2.9 2.4 1.7
32
Focused on the Pacific Alliance Attractive growth opportunity for Scotiabank
• Pacific Alliance
o Portfolio of high quality growth markets for Scotiabank
o 230 million people with median age of 29
o Largest trading partner is the United States (64% of exports)
o Largest sector is manufacturing (64% of exports)
o Trade bloc with free trade agreements to liberalize commerce and improve integration
o Supports trade flows with Asia in order to compete with Brazil and Argentina which participate in Mercosur
o Accounts for 36% of Latin America’s GDP, comparable to Brazil
o Canada has bilateral free-trade agreements with all four Pacific Alliance countries and it has initiated an application for Associate Membership in the Alliance
• Pacific Alliance is an Attractive Long-Term Opportunity
o Region is the 6th largest goods exporter in the world
o Trade bloc with governments supporting growth/significant infrastructure spending
o Solid GDP growth rates relative to peers
o Considerable room to increase banking penetration (avg. domestic credit around 2/3 of GDP)
o Fast-growing middle-class with increasing financial demands
o Favourable demographics for banking needs
o Relatively stable legal, tax, and regulatory infrastructure in place
o Central bankers have earned credibility and banking system is well-capitalized
33
Mexican Economy Diverse economy with a strong balance sheet
Top 5 Trading Partners
MEXICAN GDP BY INDUSTRY
(Q3 2018)
6.5%
5.8% 15.9%
6.3%
7.0% 3.8%
1.9%
16.2%
17.5%
15.9%
Finance, Insurance, & Real Estate
Health & Education
Wholesale & Retail Trade
Manufacturing
Mining and Oil & Gas Extraction
Construction
Public
Administration
Professional, Scientific,
& Technical Services
Transportation & Warehousing
Other
3.1% Natural
Resources
• The Mexican economy reflects a solid mix of commodities, goods production, and services
• Trade remains dominated by the U.S., but Mexico’s diversification agenda is underpinned by 13 free-trade agreements with 47 countries that account for 40% of global GDP
• Despite NAFTA-related uncertainty, investment rebounded in 2018 and trade has returned to making a positive contribution to economy-wide growth
United
States
59%
Others
21% Germany 3%
Japan 3%
Canada
4%
China
10% -3
-2
-1
0
1
2
3
4
5
16 17 18
OtherNet ExportsInventoriesGFCFGovernmentConsumptionReal GDP
Contributions to Mexican GDP Growth
y/y % change
Sources: Scotiabank Economics, Haver Analytics.
34
Chilean Economy Advanced economy with wide-ranging trade links
CHILEAN GDP BY INDUSTRY
(SEP 2018) 1.9%
9.7% 15.1%
6.2%
4.6% 19.3%
8.5%
8.7% 10.2%
12.5%
Finance, Insurance, & Real Estate
Wholesale & Retail Trade
Manufacturing
Mining and Oil &
Gas Extraction
Construction
Public Administration
Housing &
Personal Services
Transportation & Warehousing
Restaurants & Hotels
Other
3.4% Natural Resources
Top 5 Trading Partners
United
States
16%
Others
40%
Brazil
7% Japan
6%
South Korea
4%
China
27%
• Chile’s mix of economic activities reflects its status as an advanced market economy
• Chile’s diversified trading relationships are supported by 21 free-trade agreements with 59 countries that account for 70% of global GDP
• Investment has been a strong contributor to growth in Chile over the past year, which should underpin future productivity gains
-6
-4
-2
0
2
4
6
8
16 17 18
Net ExportsInventoriesInvestmentGovernmentConsumptionReal GDP
Contributions to Chilean GDP Growth
y/y % change
Sources: Scotiabank Economics, Haver Analytics.
35
Peruvian Economy Resilient economic fundamentals
PERUVIAN GDP BY
INDUSTRY (Q3 2018)
9.6%
14.6% 31.5%
20.7%
5.8%
Finance, Insurance, & Real Estate
Transportation, Information & Commerce
Construction
Mining & Energy Other
12.7% Manufacturing
5.1% Natural
Resources
Top 5 Trading Partners
United
States
18%
Others
44%
Brazil
5% Spain
4%
South
Korea 3%
China
26%
• Peru’s important resource sectors are increasingly balanced by stronger service-sector activity and solid economic fundamentals
• Peru has 16 free-trade agreements with 49 countries that account for 66% of global GDP
• Investment is making a consistently strong contribution to GDP, which should make higher growth rates more sustainable in the future
-6
-4
-2
0
2
4
6
8
16 17 18
Net ExportsInventoriesGFCFGovernmentConsumptionReal GDP
Contributions to Peruvian GDP Growth
y/y % change
Sources: Scotiabank Economics, Haver Analytics.
36
Colombian Economy Gaining momentum
COLOMBIAN GDP BY
INDUSTRY (Q3 2018)
6.2%
16.9% 13.6%
6.9%
14.9%
7.0% 2.8%
9.1% 12.0%
8.2%
Finance, Insurance, & Real Estate
Wholesale, Retail Trade, Accommodation & Food
Services
Manufacturing
Construction
Mining and Oil & Gas Extraction
Public Administration
Professional,
Scientific,
& Technical
Services
Information & Communication
Natural Resources
Other
2.4% Arts &
Entertainment
Top 5 Trading Partners
Germany
3%
United
States
29% Others
44%
Brazil
4%
Mexico
6%
China
14%
• Services account for a rising share of Colombian GDP compared with traditional strengths in extractive industries
• Colombia continues to build on its 10 free-trade agreements with 42 countries that account for 38% of global GDP
• Rising consumption, supported by public spending, reflects an expanding middle class as growth gains momentum and converges toward the economy’s underlying potential
-3
-2
-1
0
1
2
3
4
5
16 17 18
OtherNet ExportsGFCFGovernmentConsumptionReal GDP
Contributions to Colombian GDP Growth
y/y % change
Sources: Scotiabank Economics, Haver Analytics.
37
Other Regions Leading Caribbean & Central American franchise. Reducing portfolio investments in Asia.
• Caribbean & Central America
o Operations in 16 countries contributing ~ CAD$0.7B in earnings in 2018
o Well-established, diversified franchise that serves retail, commercial and corporate customers
o Actively managing footprint to ensure scale in larger growth markets and reduce risk profile:
o Announced acquisition in Dominican Republic in August 2018 which doubles customer base and creates 4th largest bank
o Announced sale of operations in 9 smaller countries in Caribbean in November 2018
o Announced sale of pension and insurance operations in the Dominican Republic in December 2018
o Announced sale of banking and insurance operations in El Salvador in February 2019
o Recognized by Global Finance Magazine as:
o “Best Bank Award 2017” in the Bahamas, Barbados, Costa Rica, Turks & Caicos and U.S. Virgin Islands;
o “World’s Best Consumer Digital Bank 2017” in 24 countries across Latin America and the Caribbean; and
o “Best in Mobile Banking” in the Caribbean region
• Asia
o Thailand: 49% interest in Thanachart Bank (2007)
o Announced non-binding MOU in February 2019 to merge with Thai Military Bank and materially reduce interest
o CAD$3.0B carrying value as of October 31, 2018
o CAD$590MM of net income for twelve months ended October 31, 2018
o China: 19.9% interest in Bank of Xi’an (2009)
o CAD$772MM carrying value as of October 31, 2018
o CAD$456MM of net income for twelve months ended October 31, 2018
Canadian Housing Market
Appendix 3:
Canadian Housing Market Higher interest rates and new regulations driving soft landing
• Significant moderation in price growth since 2017 (top right chart)..
o The composite national MLS Home Price Index rose 0.8% Y/Y, with gains concentrated in lower-cost apartments and townhomes. Average price fell 5.5% Y/Y
o Three of Canada’s five largest cities experienced year-over-year price declines (Vancouver, Calgary, Edmonton)
• Resale volumes down 4% Y/Y (table below)
o The sales-to-new listings ratio rose to 56.7% in the month, a level consistent with balanced demand-supply conditions
• Greater Toronto Market: Average home price increased 2.7% from a year ago. Resale volumes have moderated and are below 10-year average (lower right chart)
• Greater Vancouver Market: Average home price fell 4.5% from a year ago —led by weakness in the single-family home segment—but home purchases climbed 1.2% Toronto & Vancouver Home Sales2
Price Growth by Dwelling Type2
1 Sales and listings figures reported in seasonally-adjusted m/m terms, while MLS HPI growth rates reported as non seasonally-adjusted y/y 2 Sources for charts and table: Scotiabank Economics, CREA
Canada2 Jan-19 Dec-18 Jan-19
m/m* m/m* y/y
Sales (% change) 3.6 -2.0 -4.0
New listings (% change) 1.0 -0.5 8.0
Average price (% change) -2.9 -1.4 -5.5
MLS HPI (% change)** -0.5 -0.3 0.8
Jan-19 Dec-18 Jan-18
Sales -to-new listing ratio (level)* 56.7 55.3 64.2
Months inventory (level)* 5.3 5.5 4.9
*Seasonally adjusted **Not seasonally adjusted
39
Canadian Housing Market
Higher interest rates and new regulations driving soft landing
Significant Moderation in Price Growth* (Aggregate Composite MLS® Home Price Index Y/Y Percentage Change)
1 Sources for charts and table: CREA; MLS® Home Price Index growth rates reported as non seasonally-adjusted y/y
Volume of Home Sales Near 10-Year Average*
Annual Price Change by Province* (Y/Y Percentage Change)
Per
cent
Per
cent
*Actual – not seasonally adjusted
*Actual – not seasonally adjusted *Actual – not seasonally adjusted
Canada’s Five Largest Metropolitan Areas* (MLS® Home Price Index Benchmark Price Y/Y Percentage Change)
*Actual – not seasonally adjusted
2.7
-4.52
6.32
-3.87 -2.88
Average -0.45
-6
-4
-2
0
2
4
6
8
GTA GVA Montreal Calgary Edmonton
Per
cent
40
Housing Policy Developments in Canada Consistent policy initiatives to maintain a balanced and sustainable market
2018
• Canada: OSFI imposes more stringent stress tests for uninsured mortgages, including a minimum qualifying rate at the greater of the five-year fixed posted rate or the contractual rate plus 200 bps, effective January 1, 2018
• Ontario: Elimination of rent control on new rental units first occupied on or before November 1, 2018
• British Columbia: Extension of the Property Transfer Tax on non-resident buyers. Investment of more than CAD 1.6 bn through FY2021 toward the goal of building 114,000 affordable housing units in the next 10 years
2017
• Ontario: 16 measures aimed to slow rate of house price appreciation
Key aspects include:
o 15% non-resident speculation tax
o Expanded rent control to all private rental units in Ontario
o Vacant home tax
o CAD 125 mn five-year program to encourage construction of new rental apartment buildings
2016
• Canada: Qualifying stress rate for all new mortgage insurance must be the greater of the contract mortgage rate or the Bank of Canada's conventional five-year fixed posted rate
• Low-ratio mortgage insurance eligibility requirements updated for lenders wishing to use portfolio insurance:
o Maximum amortization 25 years
o CAD$1MM max. purchase price
o Minimum credit score of 600
o Owner-occupied property
• Elimination of primary residence tax exemption for foreign buyers
• Min. down payment on insured increased from 5% to 10% (for homes $0.5-$1MM)
• British Columbia: 15% land transfer tax on non-resident purchases in Metro Vancouver introduced
2019
• British Columbia: Increase in speculation tax on foreign and domestic home owners who do not pay income tax in BC from 0.5% of a property’s assessed value to 2%; additional school tax levied on portion of a property’s value that exceeds CAD 3 mn.
41
42
Housing Market Differences vs U.S. Canada’s housing market features distinct practices and policies
Canada U.S.
Regulation and
Taxation
• Mortgage interest not tax deductible • Full recourse against borrowers in most provinces • Foreclosure on non-performing mortgages - no stay periods
Insurance
• Mandatory default insurance mortgages with LTV > 80% o CMHC backed by Government of Canada (AAA). Private insurers
are 90% government backed o Insurance available for homes up to CAD 1 mn o Premium is payable upfront o Covers full amount for life of mortgage
• Homebuyers must qualify for mortgage insurance at an interest rate that is the greater of their contract mortgage rate or the Bank of Canada's conventional five-year fixed posted rate
• Re-financing cap of 80% LTV on non-insured mortgages
Amortization
• Maximum 25-year amortization on mortgages with LTV > 80% • Maximum 30-year amortization on conventional mortgages • Down payment of > 20% required for non-owner
occupied properties
• Tax-deductible mortgage interest creates incentive to borrow and delay repayment
• Lenders have limited recourse in most states
• 90-day to 1-year stay period to foreclose on non-performing mortgages
• No regulatory LTV limit • Private insurers are not
government backed
Product
• Conservative product offerings, fixed or variable rate options • Much less reliance upon securitization and wholesale funding • Asset-backed securities not subjected to US-style off-balance sheet
leverage via special purpose vehicles
• Can include exotic products (e.g. adjustable rate mortgages, interest only)
Underwriting • Terms usually three or five years, renewable at maturity • Extensive documentation and strong standards
• 30-year term most common • Wide range of documentation
and underwriting requirements
43
Canadian Household Credit Public policy changes are moderating growth in household credit
• Total household credit grew at 3.1% in nominal terms in 2018 vs 2008 peak of 12.4% y/y
• Consumer loans excluding mortgages (i.e. cards, HELOCs, unsecured lines, auto loans, etc.) grew at 3.0% in 2018 vs > 5% in late-2017
• Mortgage credit grew at 3.1% in 2018 vs 2008 peak of 13%
HOUSEHOLD CREDIT GROWTH CONSUMER LOAN GROWTH RESIDENTIAL MORTGAGE GROWTH
0
2
4
6
8
10
12
14
16
18
20
90 92 94 96 98 00 02 04 06 08 10 12 14 16 18
%, 3-month moving average
y/y % change
Sources: Scotiabank Economics, Bank of Canada.
m/m % change,
SA
-5
0
5
10
15
20
90 92 94 96 98 00 02 04 06 08 10 12 14 16 18
%, 3-month moving average
m/m % change, SA
Sources: Scotiabank Economics, Bank of Canada.
y/y % change
0
2
4
6
8
10
12
14
16
18
20
90 92 94 96 98 00 02 04 06 08 10 12 14 16 18
%, 3-month moving average
y/y % change
Sources: Scotiabank Economics, Bank of Canada.
m/m % change,
SA
44
Household Debt: Canada vs. U.S. Canadian households’ balance sheets compare favourably to US
• Canadian debt-to-income ratio is now 2.2 percentage points below the U.S. peak in 2008
o Over the last 8 years, increases in the Canadian debt-to-income ratio have slowed vs 2002–10
o Calculated on the same terms, Canada’s debt-to-income is currently 167% vs 134% in the U.S.
• Canadian debt-to-assets ratio remains below U.S.
o U.S. households have incentive to pursue higher asset leverage in light of mortgage interest deductibility
o Debt is a stock concept, to be financed over one’s lifetime. Income is a flow concept measuring one single year’s earnings. Debt should be compared to lifetime or permanent income, or assets
• Ratio of total household debt-to-GDP remains lower in Canada than U.S.
o Calculated on a comparable basis, the ratio of household credit market debt is 98.6% in Canada vs 101.1% in the U.S.
Household Credit Market Debt to Disposable Income
Total Household Liabilities As % of Total Assets
Household Credit Market Debt to GDP
166.8
173.8
134.0
60
80
100
120
140
160
180
200
90 92 94 96 98 00 02 04 06 08 10 12 14 16 18
Adjusted Canadian*
Official Canadian
Official US
* Adjusted for US concepts and definitions. Sources: Scotiabank Economics, BEA, Federal Reserve Board, Statistics Canada.
household credit liabilities as % of disposable income
16.8
17.8
10
15
20
25
30
90 92 94 96 98 00 02 04 06 08 10 12 14 16 18
US
Canada
household debt as % of assets
Sources: Scotiabank Economics, Federal Reserve Board, Statistics Canada.
101.1
98.6
102.9
74.9
50
60
70
80
90
100
110
120
130
90 92 94 96 98 00 02 04 06 08 10 12 14 16 18
% of GDP
* Adjusted for US concepts and definitions. Sources: Scotiabank Economics, BEA, Federal Reserve Board, Statistics Canada.
Canada*
US with unincorporatedbusiness debt
Original US
Original Canada
Additional Information
Appendix 4:
46
Additional Information
• Toronto Stock Exchange (TSX: BNS)
• New York Stock Exchange (NYSE: BNS)
Moody's
Investors
Services
Standard &
Poor's Fitch Ratings
Dominion Bond
Rating Service
Ltd.
Legacy Senior Debt1 Aa2 A+ AA- AA
Senior Debt2 A2 A- AA- AA (low)
Subordinated Debt (NVCC) Baa1 BBB+ - A (low)
Short Term Deposits/Commercial Paper P-1 A-1 F1+ R-1 (high)
Covered Bond Program Aaa Not Rated AAA AAA
Outlook Stable Stable Stable Stable
Scotiabank Credit Ratings
• CUSIP: 064149107
• ISIN: CA0641491075
• FIGI: BBG000BXSXH3
• NAICS: 522110
Scotiabank Listings: Scotiabank Common Share Issue Information:
For further information, please contact: www.scotiabank.com/investorrelations
1 Includes: (a) Senior debt issued prior to September 23, 2018; and (b) Senior debt issued on or after September 23, 2018 which is excluded from the bank recapitalization "bail-in" regime 2 Subject to conversion under the bank recapitalization "bail-in" regime
47
Contact Information
Investor Relations
Philip Smith
Senior Vice President 416-863-2866
Lemar Persaud
Director 416-866-6124
Michael Lomas
Managing Director
Treasury Sales and Market Development
416-866-5734
For further information, please contact: www.scotiabank.com/investorrelations
Judy Lai
Director 416-775-0485
Steven Hung
Vice President 416-933-8774
Tiffany Sun
Manager 416-866-2870