Q4 2020 Bank of Nova Scotia Earnings Call
[noise] good morning, and welcome to Scotiabanks, Twentytwenty fourth quarter and full year results presentation.
And even Philip Smith Scotia Bank Senior Vice President of Investor Relations.
Presenting to you this morning, or Brian Porter, Scotiabanks, President and Chief Executive Officer, Raj and that's one of them and our Chief Financial Officer, and Daniel Moore, Our Chief risk Officer for.
For our comments, we'll watch and take your questions also.
Also present the day questions today are the following Scotia Bank executives and raised from Canadian banking Nacho day shelf from international banking, Jake Lawrence and James need for global banking and markets and.
Glenn gallons for global wealth management.
Before we start and on behalf of those speaking today I will refer you to slide two of our presentation, which contains Scotia bank caution regarding forward looking statements with that ill now turn the call over to Brian Porter.
Thank you Phil and good morning, everyone I would like to begin my remarks today by reviewing the bags progress over the course of fiscal 2020, I will then turn the call over to Roger to review, our financial performance and to Daniel to discuss risk.
I will then return after Daniels remarks to conclude our presentation by discussing our outlook for the year ahead.
I would first like to acknowledge our customers for their tremendous loyalty and support over the past nine months during cold and.
I would also like to recognize our employees for their for their incredible professionalism and dedication during of stressful and difficult period.
2020 watts, and unusual and challenging year, which tested the global economy and the bank in many respects, but it also represented an important near for <unk> for strategic progress and accomplishments the position of the bank very well for the future. Many of these appear.
On slide for.
When I reflect on this year three words come to mind. The first is resilience of the second of strength and.
And the third is opportunity beginning.
Beginning with resilience and when the year of again, our repositioning efforts, we're substantially complete and we were poised to demonstrate for full earnings power as a leading bank in the Americas.
We had completed for divestitures and the first quarter and had fully integrated the V.A., Chile, and our wealth acquisitions, we hosted a very successful on Investor day, and Santiago, Chile, which showcased our strategic progress highlighted our competitive strength and outline of the many opportunities for.
Expansion and growth our first quarter results gave a clear indication of our progress and our growth.
For the head.
The rapid global spread of COVID-19 change the outlook for 2020, it was not a scenario that anyone could of for sales, but it was one which highlighted the resilience of the bank in many important areas.
Our business operations performed extremely well.
We transition smoothly to remote work environments, our technology was robust and highly reliable our branch networks for remain open for customers through up.
Our resilience was also demonstrated by the strength of our customer support networks, including our branches digital banking channels and call centers, which channel record volumes during the year our.
Our capital was also highly resilient our common equity tier one ratio rebounded strongly in Q3 in Q4 to settle at 11.8% today.
The ability of the bank to generate capital even during times of extreme uncertainty and market volatility is undeniable.
Furthermore, this quarter has provided clear evidence of the resilience of earnings we are well on our way to returning to full profitability and our performance. This quarter represents and positive earnings momentum that we expect to continue and 2021 and beyond.
Lastly, our diversified business model played an important role and our resilience as of bank when one of our business lines and counter difficult business conditions. Another was there to offset that weakness.
Due to the investments we have made in recent years, we now have for large scale business lines that provide important diversification.
Business activity and by country during times of uncertainty.
Moving now to strength.
Our resilience is testimony to the underlying strength of the bank our asset quality is one of our key strengths. We are primarily a secured and investment grade lender and thrilled the pandemic, we have seen the benefits of our risk appetite with few sources of weakness in our lending portfolios.
Well some of that can be attributed to the scale of government assistance and government supports and customer support programs I believe our asset quality stands up.
For example, our risk weighted assets are lower today.
Then when the pandemic began and below the levels of a year ago. In addition, our gross impaired loan ratio has declined year over year.
Our strength is also reflected and our ability to provide extensive customer assistance during a period of stress at its peak, we provided over $120 billion of direct financial support to our customers, including approximately 90 billion of payment deferrals to our.
Retail customers and.
Approximately 30 billion of additional facilities to support our business customers. This support achieved its objective of providing important release and promoting financial stability. I believe these actions will serve to further deepen our customer relationships for years to come.
In fact, we were ranked as number one and customer satisfaction for our response to COVID-19, among Canadian business owners finally, our strength and digital banking was evident this year as walk downs.
And a focus on safety.
Prompted more customers to rely on digital channels. This resulted in a strong increase and digital adoption to almost 50% of our customers in 2020, well of digital sales accelerate and to 36% for the year.
These digital trends will continue to play an important role in the future of banking.
We look forward to providing additional insights on our digital progress next quarter and as we refine our digital metrics for 2021.
Finally, I would like to discuss the opportunities we have for us as we embark on a new fiscal year.
With any crisis comes opportunity for.
First we have multiple opportunities to either reduce for moderate expenses through efficiency and prioritize station initiatives in order to improve for operating leverage.
Our industry, leading productivity ratio and the benign rate of expense growth and 2020 reflects the priority we give to expense management.
This will be a key area of focus for us and 2021.
Secondly, 2020 introduced many customers to digital banking for the first time this.
This has provided an acceleration and digital adoption, which will provide material benefits to both customers and the bank going forward.
Finally, with the expected introduction of the vaccine and the economic recovery more fully underway the focus and banking will shift from capital adequacy to capital deployment. The bank has multiple avenues for capital deployment as a leading bank in the Americas. These.
And include organic growth and our existing businesses share buybacks, when they're permitted and acquisitions I am confident we will take advantage of all opportunities that are in line with our strategy and enhance shareholder value with that I will turn the call over to rush to discuss Sir.
Financial performance.
Thank you, Brian and good morning, everyone.
I'll start on slide six on.
All my comments that follow and coating the discussion of business line results will be on an adjusted basis, which excludes acquisition and divestiture of related amounts and.
And other adjustments outlined on slide 40.
The bank and the deal with diluted earnings per share of $5.76.
Pre tax pre provision net income was down on a modest 1% on up 5%, excluding the impact of divestitures.
Earnings from of PNC businesses was impacted by higher provision for credit losses on performing loans.
And lowered revenue driven by the pandemic.
Global banking and markets and record earnings of over $2 billion benefiting from strong revenue growth.
And moving index Thats management.
Global wealth management of earnings of $1.3 billion were up 7% year over year on 8%, excluding the impact of divestitures driven by higher assets under management from stronger net sales and market application and food and expense management.
Revenue was flat for the bank and expenses were up modestly that resulted in operating leverage being negative 0.6 of positive 1.0%, excluding the impact of divestitures.
Moving to the on bank performance for the fourth quarter on slide seven.
The bank debt of what over $1.9 billion and earnings and adjusted diluted EPS of one dollar and 45 cents for the quarter and increase of 39% from last quarter.
Revenue decreased 6% from last year.
On a more modest 2% from last quarter.
Net interest income declined 2% as strong asset growth and higher contribution from asset liability activities was.
It was offset by the core banking margin being down 18 basis points to 2.2%, reflecting lower market and administered rates in most markets year over year.
On a quarter on quarter basis, the margin improved 20 basis points, primarily due to beta asset liability management and business line margins remained stable.
Non interest income for the quarter decreased 10% of 5% year over year, excluding divestitures, driven by Nova banking and showed ends and other fee and commission revenues.
And the slowdown and consumer activity as well as the negative impact of foreign exchange.
These were partially offset by higher trading revenues.
Sequentially non interest income increase in Canadian banking.
Cash and banking and wealth management.
Partially offset lower capital markets revenue, which had a record third quarter.
Prudent expense management led to a 5% decline year over year on 3%, excluding divestitures, you to know of professional fees and bid.
I think and business development and the positive impact of foreign currency translation.
The PCL ratio was 73 basis points down 63 basis points quarter over quarter.
And up 23 basis points year over year.
Danion will discuss pcls and mortgage and shop.
On slide eight we provided an evolution of our seed you on capital ratio over the quarter.
Bank reported a common equity tier one ratio of 11.8% improving a strong 50 basis points this quarter and 70 basis points through fiscal 2020.
This quarter's growth of 50 basis points was primarily driven by strong internal capital generation of 16 basis points and.
Lower book size, mainly from high and repayment of business banking credit and lower market interest risk weighted assets.
Turning off of the business line results beginning on slide nine.
Canadian banking reported adjusted net and net income of $782 million a strong rebound from Q3.
Year over year of residential mortgages grew 6% no balance has and personal loans and credit card receivables declined 16%.
Business lending grew 6% and total deposits grew 12% outpacing asset growth.
The net interest margin was stable compared to the prior quarter.
And 2.26%, but declined by 15 basis points year over year debt.
And by Central Bank rate cuts and changes to business mix.
Non interest income declined 7% use and lower banking foreign exchange and insurance fees and.
And by the V. kind of economic environment.
Expenses for Canadian banking were down 3% year over year, driven mainly by lower advertising business development and travel costs.
The BC and ratio increasing other we owed by nine basis points, and 37 basis points, but declined quarter over quarter by.
By 48 basis points.
Turning to the next slide on International banking My comments that follow on based on results on a constant dollar basis adjusted for the back of divestitures.
International banking reported adjusted net income of $218 million and.
And to Q3 earnings increased significantly driven by lower provisions for loan losses.
Well on revenue grew 2% pretax pre provision and income was down 3% of flat for the Pacific Alliance countries.
Loan growth was 7% year over year and business lending grew 10%.
Residential mortgages grew 9%.
While balances and personal loans and credit card receivables declined 5%.
Net interest margin declined 54 basis points, driven by higher liquidity changes and business banks and the impact of rate reductions across the footprint.
Compared to Q3, though margin was stable.
Non interest income decreased 11% driven by lower banking and credit fund.
Fees due to the snowed on and consumer activity, while investment gains and trading revenues, but higher year over year.
Compared to Q3 non interest income increased by 18%, mainly driven by investment gains and the rebound and net fee and commission revenue.
And provision for credit losses was $736 million up 62%, yet on a year, but down 41% quarter on quarter extend.
Expenses declined 2%, mainly driven by lower personal cost and.
Other cost management initiatives.
Let me highlight of in a challenging year international banking pre tax pre provision net income was modestly down 4%.
While the Pacific Alliance countries showed high and resiliency and decreasing for me one.
Moving to slide 11, global banking and market.
Net income of 460 million was up 14% year over year, driven by strong asset and deposit growth and robust for fixed income trading revenues.
Strong operating revenues and on underwriting fees over the last couple of quarters, that's on to more normal levels this quarter.
For the full year GBM had a record of net income of $2 billion.
Expenses decreased 8% year over year, primarily due to know of bush on costs for the business line.
Adjusted operating leverage for the year was 22% as GBM had record revenue, while maintaining strong expense management discipline.
Turning now to global wealth management on Slide 12, adjusted earnings of $333 million, but up 6% year over year, driven by strong net sales higher trading volumes and market appreciation.
Canadian wealth management earnings were up a strong 14%.
Excluding the impact of divestitures and on international operations.
Assets under management was up 2% and assets under administration was up 4%.
Canadian aid and grew 5% and.
8% during the year.
Revenues were up 4%.
Moving the impact from divestitures with Canadian wealth revenue was up 6% year over year, driven by high and mutual fund fees due to strong volume growth.
Expenses were down 2% year over year, you could impact of divested operations wealth.
Wealth management results and remain supported by strong and.
And then fund performance.
I'll now turn to the other segment on Slide 17 net results also include the gains and losses on divestiture and asset liability management activities.
The other segment reported net income of $8 million compared to last year's net loss of $48 million.
The improvement was due mainly to higher contributions from asset liability management activities, partly offset by higher on non interest expenses I'll now turn it over to Daniel will discuss more on it.
Thank you, Rob and good morning, everyone.
I will begin my remarks on slide 15.
Today, My comments will address of three important items first.
Firstly, our credit quality, which.
Which is performing as or better than expected.
Secondly, our outlook for lower Pcls in fiscal 2021 and.
Thirdly, our Hcl Bill.
Which is complete.
We've included Twentytwenty and a strong position with a stable portfolio.
Well reserved.
Our customer assistance programs have largely expired.
And the credit performance of the customers and exiting these programs and remains very strong.
As we ended the year the bank reported total allowances of $7.8 billion, an increase of 53% over the past three quarters.
This means we have appropriate coverage for estimated net write offs to 2021.
So.
We do not foresee a build and performing allowances and Twentytwenty one.
Our total provisions of 1.13 billion and Q4 were down over $1 billion from last quarter.
Total provision for credit loss ratio improved by 63 basis points over the same period.
This is consistent with our guidance for Q3 recall that we indicated on Q for PCL ratio was expected to be for low Q2 levels.
It's significant here to highlight for the impaired PCL ratio improved by four basis points to 54 basis points.
On slide 16 shows more detail on are performing and appeared Pcls.
Let's start with the impurities sales we.
We reported.
$135 million in Q4 down from 928 last quarter.
This improved because of lower retail provisions in both Canada and international.
Both delinquencies and credit migration and improved.
Our performing PCL for $296 million and Q4 down nearly $1 billion from Q3, roughly 80% of the decline was driven by retail mainly and international.
On the next slide we provided additional details of our international retail credit performance by country.
Our PCL ratio improved significantly for Q3 across most of our Pacific Alliance countries, and the Caribbean and Central America.
But there's still above historical average levels.
Let's turn to our customer assistance programs on slide 18.
Both of these programs have expired for this quarter as expected.
Outstanding year and performances balances were approximately $15.7 billion.
This is a decline of over 80% from its peak.
As of the end of November retail deferrals of already declined by over half the 5.3 billion.
And the bulk of commercial deferrals expire by the end of Q1.
What's important is that these programs provide for relief to our customers through the pandemic.
I'm pleased to note seem very high percentage of customers are current on their payments after exiting the programs and this reflects the strong credit quality of our portfolio.
The high levels of payment activity, we saw in Q3 cash.
Tenured into Q4 as more customers systems program expired now.
On the 7% of our retail customers remain current and Canada.
For international banking, it's nearly 19% and for commercial and 99%.
As I noted last quarter or to flow exposure is skewed towards secured mortgage lending with low LTV.
I also want to note of the credit performance of our unsecured personal and credit card exposure.
Remains strong.
Turning to the credit quality of of portfolio.
It remains strong and you'll see on slide 19.
Our Gil ratio of 81 basis points was flat against last quarter and declined by three basis points year over year to.
The main reason with retail.
We saw a lower migration due to the customer systems programs.
And international commercial we saw a small increase driven by a single account formation.
I am also reported slightly higher formations, but these were offset by lower sales in retail driven by customer systems programs in both Canada and and international.
On the bottom of slide 19, and see the all bank debt write off ratio has improved to 41 basis points down six basis points for last quarter and down eight basis points from a year ago.
This was driven by Canadian and international banking.
Both of which benefited from the customer assistance programs.
Okay.
In summary Threeq.
Three things are core to risk management of Scotiabank.
Firstly strong adjusted coding.
Secondly, having appropriate allowances and third being there for our customers when they need us most.
Our foundation is solid because we've done all three we see strong deferral payment trends.
We're adequately provided to absorb net write offs for the second half of 2021.
And were seeing our customers returned to current status in line with or better than our expectations.
As we look to next year.
Our allowance coverage estimated net write offs.
And the build and our allowances is done.
We expect our 2021 PCL ratio to average close to the level of prior years.
And I'll turn the call over to Brian.
Thank you Daniel.
I would now like to discuss our outlook for the year ahead, given the uncertainties related to the pandemic, it's quite difficult to forecast with any real precision that being said there are several important factors that make us cautiously optimistic for the year ahead.
The first is the scale of economic stimulus in response to the pandemic the scale of stimulus from interest rate cuts, which support programs pension fund withdrawals to name a few is unprecedented.
For example, fiscal stimulus and Canada, the United States, Chile, and Peru has averaged 17% of GDP, while monetary stimulus in Mexico, and Colombia has averaged over 250 basis points Paul.
Policy actions by governments and central banks across our footprint have been numerous decisive and powerful.
Second is the impact of stimulus for.
We are seeing clear evidence that the stimulus is having the desired impact across our footprint and.
In Canada retail spending has reached pre pandemic levels. The housing market is experiencing robust growth and auto sales of largely recovered.
Economic growth and the Pacific Alliance has bounced back with average Q3, GDP growth of 14% versus the prior quarter with Peru, posting a dramatic 30% GDP growth figure.
As such there is ample and growing evidence of the economic recovery in our core markets is well underway.
The recovery will likely be staggered with different countries returning to positive year on year over year economic growth and different times, the pace of economic recovery, and China, and the United States and the rebound and commodity prices such as energy and conifer also bode well for Canada and the Pacific Alliance can.
Patrice, where we forecast GDP growth of over 5% for 2021 fund.
Finally of vaccine will be introduced shortly well our current outlook does not rely on and effective vaccine being introduced any progress towards this goal will certainly improve our outlook.
Turning now to our business line outlook, we expect 2021 will be a transition year towards a return to the flow earnings power of the bank.
Supported by a return to normal PCL levels consistent with an economic recovery Canadian banking earnings are expected to continue its momentum and the next year.
From a strong rebound this past quarter, driven by good volume growth and mortgages and business banking stable net interest margins and fee income growth aligned with the improvement of economic activity.
We are encouraged by the recent signs of improved economic activity reflected in rebound and GDP growth in the Pacific clients and we expect international banking earnings to continue to grow throughout 2021 towards our target and earnings levels wealth management is very well positioned.
Yes, and to continue to growth in line with this year for.
Following the successful integration of our acquisitions and strong fund performance in 2020.
GBM had record earnings this year benefiting from market conditions, and and elevated franchise from up Tiering client relationships and market physician looking for it to 2021 GBM is operating from a stronger platform and momentum is positive the bank.
Capital position is strong and will remain so in 2021.
So our focus shifts from capital adequacy to capital deployment I am confident we are well positioned to take advantage of opportunities as they arise in line with our strategy.
In closing, we started 2020 well.
Solid performance in Q1, and we ended the year in Q4 with strong earnings momentum I believe these results are indicative of the earnings potential in quarters ahead. This concludes my formal remarks, and I will now pass it over to Phil for questions. Thanks.
Thank you Brian will will now be pleased and take your questions. Please limit yourself to one question and rejoin the queue to allow everyone the opportunity to participate and the call.
Operator can we have the first question on the phone please.
The first question is from Ebrahim Poonawala from Bank of America Securities. Please go ahead.
Good morning.
Hi, guys. So I just wanted to touch up on the International Bank, who segment and you've provided the symbol of view and I'll get I'll take for the market. If you could just talk of this question and two parts one given good going on.
Of course with limited flow to the liquidity to Lloyd has anything at all on for new and should be changed Brian and you all my and in terms of the growth outlook for these market for what could mean for Scotia and secondarily.
And then back of my notes Raj and I think early on and the year before cool that you expected earnings power for the international segment to be north of $500 million for quarter, I'd and again, a very different feedback growth look to us and on what's needed to sneak in this interest feedback Gulf and we think about on net income for the segment. Thank you.
Okay, Thanks, Ebrahim and I'll start and I know a rush and non show may have some comments.
Clearly the of political situation and through has stabilized the new president as well respected and.
Is no and very well and political circles.
Good.
It's very improve I know, it's confusing to look at as from an outsider but.
During our 20 plus years their governments change from center right to Senator left on the economy's run from the center so.
If you look at S&P has maintained the country's investment grade rating as I mentioned in my comments.
GDP growth of 30% and the last quarter and Theres lots of torque in the Peruvian economy and the economy is kind of come back very strongly that's going to be voted by record copper price as we see here today and.
Trade with China, and the U.S. so in summary.
If you look at not just prove but the Pacific Alliance. This region is extremely competitive on trade low levels of private debt.
Theres less fiscal drag on the developed countries and.
And these countries have not had to raise rates to attract capital and Thats an important point. So currencies are stable appreciating versus the us dollar over the past six months. So there's lots of work left and these economies, we're starting to see it and you will see that flow through on our results.
Say agreements ride does talk on some of the earnings predictions that we talked about and then I'll pass it on and on track if he wants to speak of what specific countries.
Youre right, we have indicated that the two loans potential of this business should be north of $500 million per quarter rebounded very nicely doing on $282 million this quarter and we see sequentially. This is going to continue gain for the quarter after quarter and brand.
Hi, if you want to put US day, I would say that $500 million should be achievable by Q4 of Twentytwenty. One at net earnings is going to be driven by couple of five of those revenue growth is going to try and because of the retail stocks coming back which has been on drive because of the lack of economic activity, you and I see that non promoted growth and.
Non assets targeting middle of next year, and retail and commercial and will continue to be solid we think across the footprint and most importantly, I think net interest margin. Even this quarter you saw it on the drop two basis points at coats of footprint, we don't see large margin compression ahead of us.
Might find a few basis points and a quarter and also but nothing that should impact net revenue projections going forward and finally, what I'll say is on fee and commission revenue, it's a big part of revenue and Offloading. Some of the International Bank, particularly when you think of what the Caribbean Central America, but also the other alliance you've seen the non interest.
Revenue growth sequentially. This quarter on loans continued to see that which is completely linked to that of done on economic activity, which is the same driver that will lead to the retail bid on coming back of fossil footprint or would you not.
Well I would just out of a maybe for your first question on complementing Brian's comments for him I think interesting about who market Scott responded well after the election of the point of credit of stresses that capacity on.
Uhhuh issues and on the Centennial Bank after that for the year, a week ago and that was oversubscribed on each of you achieved a record interest rate the red and relative to other emerging market. So I think is a very positive signs of the markets have responded well you just going to be and transition government and we have and presidential election.
And in April and they do.
I would also highlight that on the macro side of the continued growth of China, PC, We Chinese and most important trade partner to Chile, and Peru piece of positive and driver as well of the USBC economic recovery for the next weekend for Mexican manufacturing exports and overall EPS rush I expect by the end of 2000.
Of the 2021 will be around 500 media and in addition to the recovery of rods and recovery of fees on volumes I also expect expenses to be a positive driver as you saw it for a year over year expenses wind down and discussing and easy kind of the same.
Right and so that is helping us to keep our whole of your PT pp flat in the Pacific Alliance countries.
Thank you.
Operating and we have the next question. Please. The next question is from Gabriel Dechaine National Bank Financial. Please go ahead of.
Good morning.
Daniel Thanks for all the commentary on.
The other PCL outlook and some.
Goal post foods, well I'm, just wondering like we've been kind of condition. They expect the first half to be the peak or is some on Q2 I guess for.
For impaired provision.
And now it sounds more like 20, and 21 and the year could actually be into 2022, just want to give us sense of timing, there and and throwing a quick one on expenses.
And do you expect the flattish expense growth for next year. Thanks.
Sure. Thank you I'll start with the.
And with the the timing on the net write off and on and off to Raj on expenses, Obviously fund.
You are right, we would see we've seen there.
Net write off and start to increase.
That will continue into into Q1.
We anticipate it would grow into Q2 and and peak in Q3, given the government referral programs.
And other impacts coming through.
For what's important here I think is and.
We look at the to flow programs coming off our customers as I indicated are really performing very well and coming back to current very very quickly. So we will be down at the end of Q1 to really a very small number of about $1.1 billion of our retail customers into for growth as I said, we're seeing nice on for some of those in Canada.
Coming back to current nine.
And then I have some of the commercial about 90% and international.
And that's what we used to drive some of our analysis on our allowances.
And of perhaps also importantly.
We don't see a high percentage dependency on serve and those deferral of fibers. So we don't is any sense of SEC, leading and earned from numbers either on other number Raj and all and on our on our expenses sure you gave on timing of give you.
A little bit of perspective of how we see expenses flow.
Moving to and Twentytwenty one.
Mike one of our Twentytwenty to stock and so it gives you a bit of context 2020 on expenses grew only 1% so thats a lot of.
Expense management discipline that the bank has we've always talked about it needs to go in line on the SKU from revenue as well as prioritization and we've demonstrated that in 2020, we expect to do that again in 2021 as well.
This time, we don't see expenses going of any significant and magnitude in 2021 across the bank.
It's going to be flat on compatible to 2020 lots of opportunities across the footprint and onshore talked about his business and event.
Have opportunities can quickly get to make sense gain likewise, we have and this and the investments we need to make will and Canadian banking and GBM, but we have enough opportunities have cost and expense base nature of that makes sense goes remains.
Very low perhaps compatible to 2020 levels actually finished 21.
Alright. Thank you we're going on other calls coming up sooner. So I'll leave it there I was going on.
Thank you.
The next call. Please operator.
The next question is from John Aiken from Barclays. Please go ahead.
Good morning, non show when we when we look at the decline in the average loan balances and your segment can you talk to how much of that was driven by lower demand and how much of that was actually Scotia.
Potentially pulling back from the market place just to see how risk is going to settle on.
Sure and.
Well.
No look on it first on the whole year of because I think it's very important to see that we had a 10% of increasing our loans booking the year and these west sameness in kind of that was driven by the growth of business banking and mortgages.
In the queue for we had and imports on the decline of 7% of business banking loans as a our corporate costs for customers paid back their short term license for dicey debt.
Yes, Tim for Ari I expect now business banking and a mortgage is to continue the good momentum into Twentytwenty one and.
Due to the to the pandemic and locked down say unemployment rising and watsi lower growth they actually only 2% growth whole year in on secured lending Doug will take and you will be longer, but I expect a us economies recoveries and.
Will gradually on back comes on I'd and they'll. Thank you. Thank you want and we should be growing Saudi leap, both in wholesale and retail and assuming our fees.
That's great. Thanks, a bunch of.
Sure.
Operator, we of the next question. Please next question is from Mario Mendonca from TD Securities. Please go ahead.
Mr and dumping your line is open.
I'm sorry can you hear me now.
Yes, yes, and Harry sorry about that Danny I want to go back to what you were referring to on Pcls. Your your guidance and make sure I understand it correctly you suggested the pcls the pcls ratio should be back to what it had been in prior years.
That's on me off of threw me off a little bit just because I would expect that as the deferral periods expire and as you suggested we would see impaired losses actually climbed throughout 2021.
Are you contemplating any release of the performing loan loss allowance.
That actually caused the performance of the total pcls ratio to be consistent with prior years.
Yes, Thats a dynamic obviously that we expect from the high for US not accounting Mario is that through this period, we've built our performing allowances as we looked at our force for portfolio and forecast performance.
As you go into the realization of net write offs you have these accounts of migrates for these various stages and I for us nine and so as they migrate and move from performing stage, one two and to stage three and some of those buildups and the performing offset slight increase and the stage three.
I think on net write off and so that counter balance between the two will drive the net total PCL to levels that are close to or just above our previous PCL levels for the whole year on average and that's why we're confident and we look at these numbers and saying that whilst at a pretty dramatic credit story.
And Twentytwenty that story has been written and we're now done with the whole build.
Okay. So just going to the impaired than for a moment. The increasingly impaired is there is there anything you can offer there.
Like how much higher than than in prior years.
Just so we can get a flavor of for the how those two dynamics play out.
Yes, I think I think if you look at the total over the year, the increase and impaired and ultimately the increase in net write offs of course as a result of that.
We'll be in line with but less than our built and the allowances that we've had over the course of this year, but.
Because we're going to maintain some level of those allowances for the longer and during structural damage that we see and the economy that can go beyond 2021.
Okay. Thank you.
Operator, we of the next question. Please. The next question comes from landmark for Saad Cormark Securities. Please go ahead.
Thanks, and looks like deferrals, and international banking and not rolled off of quite as much as.
Expected in Q3, maybe not you could talk to which countries and extensions are granted and and if there is any risk of having the deferrals extended further and me.
Okay.
Part of the market, yes, yes.
Yes, happy to answer look and as Daniel mentioned and international as of October 30, Onest, We had a speedy and inactive deferrals, but I estimate that as of yesterday November 30 equal decline would have declined to less than three volume and 50% of debt related to mortgages on.
Concentrated in Mexico, and cheating for that program started later or were extended by regulation. So in other words and mark but as of yesterday, we should be 90% of the balance of should have expired and and payment behavior has been strong and our rub, 90% and current social.
It's also important part of the important to highlight that the early on when we draw and on pensions in video and Chile has been the very positive to help customers resume their payments.
Loans to more than $35 million in both countries. So overall the us east on programs have had and positive effect on our head of helping customers regained their financial health.
Okay on particularly of the next question. Please.
The next question is from Doug Young day, All Bank capital market. Please go ahead.
Hi, good morning on just because of the Brian you mentioned in your prepared remarks buybacks.
As one way to deploy capital and acquisitions and so any thoughts on that you can provide us in terms of when you might think restrictions on buybacks or dividends increases might come on and when you think of acquisitions.
Lower down on the total recall, what and when you think of the ways you're going to deploy capital. Thank you.
Okay. Thank you for the question, Doug I think that the superintendent was pretty clear in terms of allowing.
Allowing buybacks and dividends and increases in his speech last week, but.
You know from our from our perspective, we have our two top priorities in terms of capital.
Location are investing on our own businesses and we're doing a lot of that and examples are and and investment in.
Our retail sales force and HF Air and mortgage unit here and Canadian banking and global wealth management and terms of our sales force there as well and there is lots of opportunities for us to invest and and our own business. So that would be 0.12nd would be on share buybacks. We.
Thank our stock on a valuation basis is incredibly cheap we understand the value and the organization and the earnings potential of this organization. So those would be the top two priorities for the bank from a capital allocation perspective, and anything to do with any luck acquisition or potential acquisition.
It's just sheer speculation we're focused on are driving our own business here right now.
And thank you.
Operator, we of the next question please.
Next question Dark Goldman Leach RBC capital market. Please go ahead.
Hi, there. Good morning, My question is for Dan Moore and.
Maybe just maybe Dan as of preface. This is to help me understand the adequacy of your reserve.
So on looking at your deferral program and what I'm interested in is.
Not the percentage of current but I'm interested in the percentage that is not current and I was wondering if you can help me understand.
What is that number.
And if they all went impaired.
Eventually what would that loss be how that stacks up against for Hcl.
Yep, so firstly on the on the let's be very clear on the customers that are current.
Of those of essentially all made a first payment.
So there they have.
They are they are cash flowing and and we feel good about.
Return to current for those for those customers secondly.
Your question was on coverage and how we feel about the coverage we've had darko of 63% built and are performing allowances over the course of this.
We feel thats very adequate and a couple of metrics to.
To your question on that first of all if I look of business banking.
28 quarters of coverage no realizing obviously historical losses, when coupled with the future losses that feels pretty good.
Secondly.
On this talk of the.
Fired customers, if I assume that all of those expired customers go all of mine for customers. So still on the for up and they all go to delinquency, where the rate and it's consistent with the 30 day delinquency rate and.
We've seen so far and Furthermore, all those through these loans delinquent go fully into net charge offs, so pretty can service option for the whole for for business.
On retail.
I've got for cards, two times coverage and for loans, three and a half times coverage. So that put its pretty strong coverage ratio on those extremely conservative assumptions. So that's one factor if you on what metric we can use darko to think about how strong and allowances on and that's what gives us confidence and our outlook on our credit quality going forward.
Okay, So just to be clear debt.
The numbers that are currently have not made of payment.
They're they're currently not classified as and there how big of though is that number across the year.
Across the various books.
The current the it's less and more to develop about or less than 1% for growth.
On the customers that have not made of payment that have expired and return to current.
Okay.
Okay, Okay, and they fall, let me follow up with and thank you yes.
Yes, okay. Thank you.
Operating with the next question. Please the next question Scott Chen from Canaccord Genuity. Please go ahead.
Good morning, maybe not so just on international and maybe kind of tying with their expense comment and I noted that Brian notice of branch count was on was down significantly and.
And it kind of acquainted for.
For all 10% quarter for quarter, how much of that was due to divestitures and how much of that was due to core kind of five.
For.
For from from Premier actions on your part.
Well I would say.
And as cost it has to do mostly we did each on media and Theres some impact of day of the integration synergies, but really it is because of the weight consumers have adopted and technology due to call it debt.
Truly unprecedented and we have seen in the Pacific Alliance countries for the average age of our customers and Chevron 30 years old and tremendous growth. Both in digital adoption that has gone from 35% to 46% and detailed sales that have gone through 30% to 50%. So.
She said trend that accelerate equity of you see our for last for years, we have reduced gradually our branch network, but for by 150 branches in the past for year. So these accelerated doing using green coffee cost due to the acceleration of the detail. Ron just continued to play a key role non actually day.
One of the key changes fees that we are on boarding DG, telling customers end to end and branches and that is increasing and not only customer experience, but he's also increasing part of GVT on improving efficiency. So VCC piece is what has happened and I expect that these will continue more gradually index in future years, but ice.
Our expenses will continue to go down in 2021 and 2021.
Great. Thank you and.
Operator for the next question. Please net.
Next question is from Sohrab Movahedi from BMO capital markets. Please go ahead.
Hey, Thanks, just wanted to go to Dan Reese is he's had an easy and little bit to kind of catch up for them and.
Yes, Brian mentioned in his remarks that there's going to be some good continued momentum.
And your business, obviously, a good rebound quarter over quarter of but.
What does that mean and what are going to be the drivers of that momentum for you. If I think about of both from an earnings and maybe volume.
Volume growth.
Good morning, Thank you sort of look we're expecting both in Q1 and through the course of next year or two largest loan books will continue to expand we were really pleased with their performance in Q4, and we've seen good momentum in November already and here's specifically I'm speaking of mortgages on our real estate six.
And lending program and general where we have market leading step program for we take a full collateral charge, which allows us to cross sell higher margin generating product as well as the mortgage and of course, our commercial loan book, we're really pleased with how the balance sheet for farmed you're not seeing much by way of kind of unexpected.
And on.
Turn off in terms of deferrals or formations are net write offs or stage three so those two books will continue to grow through the course of next year looking at fee income, which I know is the subject of interest off and for the street when looking at our portfolio.
We saw non interest revenue sequentially in Q4 improved nicely. That's both as a result of banking fees and retail small business and commercial coming back online.
Very pleased with the sales performance that we're seeing in our mutual fund business as well as credit cards and insurance for were undersized and we still see opportunity to return to our natural share. So in addition of those comments I would just double underline qubec. We established some time ago that were a little out of balance and terms.
Of our regional prospects, we've been making steady improvements brick by brick and building our franchise and Quebec and the performance this year and expectations for next year continue to be very good.
And then just on.
On the margin you think you should be able to maintain and given that mix that you have from here or do you foresee more margin pressures.
I think the outlook for margins for the Canadian Bank I think are good for next year. We think we're pleased that we stabilize this quarter and I think as the mix continues to improve we're we're optimistic with regards to fiscal 2000 and like I think some of that it made sense of fixed debt margin. In Q4 was 226 basis points. That's what we expect of in Q2 of 2000.
And one for Canadian Bank.
Okay. Thanks for that clarification.
Okay. Operator, we of the next question please come on.
Next question is from Paul Holden CBC Keith go ahead.
Thanks, I'll try to keep this quick as we as we think about the international investment banking and the return to that 500 million.
Quarterly run rate one of gotten better understanding of how.
Travel and FX transactions and other.
Fees, you generate from travel might play into that like to do we have to assume a return to and normalization and travel or are there offsets such as the expense reductions you've been focusing on that help you get to the 500 million even of travel remains subdued.
Thank you for your question I think it is beyond travel a let me put of these way we are seen to date and Q4, 20% below our fees and commissions, we had a year on both so I see these us on opportunity that piece of GAAP and gradually reduced cash based economies recover and net.
Sales has been already of strong rebalanced and actually we had an 8% increase the net fees and commissions in the quarter. So this is going to be a gradual recovery of of course has traveled recall for his particular and the Caribbean that will happen and possibly be impacting the second half of Twentytwenty one.
Okay. Thank you.
Cash operating the next question please.
The next question is for Mike ratio.
I'm kind of Swiss secured capital. Please go ahead.
Hi, Good morning, let's go back to not show on the Pacific Alliance. So I'm just focused a bit on the commercial loan growth and I know, it's been a challenging period last few months, but if I compare your growth versus industry peers, and it's really in all four countries and it looks like there has been quite a bit of underperformance on.
Wondering if you can talk to that a little bit just on a high level looks like there is some sort of de risking going on.
Just given that your performance versus peers can you provide some color on that please.
Sure no. Its a good question, but I really feel good I'm very I feel very comfortable of our level of growth. There is some distortion of growth because of the bulk of government a GAAP.
On T. programs for new lending on some of our peers kind of a greater participation I feel very very comfortable of the level of per day of participation because we provide to our clients that need but if you exclude that I think we are performing word, but nothing to Pearson and we think we have a good and balance we profitability actions you actually.
Our performance relative to peers in terms of revenue in terms of name in terms of ERP is very strong in that for in the Pacific Alliance countries, especially in Mexico, and Chile Watch these saying a support from government programs of source I expect you will continue to see our.
Growth aligned with the market.
On retail cash I mentioned already Cassie capacity will be lower but he will gradually peak off of customers come out of cost and recipes and programs and employment recovers FCD sort of reighty trending.
Great. Thank you for the color.
Okay. Operator, we have for one more question and I think this will be the last question.
Thank you and last question will be from Ebrahim Poonawala from Bank of America and Securities. Please [noise].
Hey, Thanks for taking on the question again.
So Brian you mentioned on capital deployment, becoming effect next year.
I was just wondering if maybe you can address.
On the 11.8%.
What's your outlook in terms of as impairments right R.W. inflation impact on on the capital ratio and remind US where you think the bank should be operating and months for not just the macro outlook is improving lots of just steady state CD, one that youd like to operate the bank and thank you.
Thank you Brian strong.
The strong capital rebounded this quarter as you saw 11.8% Ive talked only on boats that we had on to see when the economy recovers and so on what could be the structure of damage across our portfolio. The analysis of all always seems to indicate it's no more than 40 basis points Abraham and when we think about capital deployment that will happen next next year.
Good growth, but also backup and strong intent on capital generation, which as you know is about 10 basis points for the quarter for this bank with normalized earnings we think on capital ratio will be certainly north of 11 25 flow so to what level of talk as we think through next year.
It's a little difficult on so what is the optimal capital I think optimal capital we've been through the largest stress test that you can imagine and this last year of and the exception of one quarter of that capital ratio of 10.9%, it's been comfortably north of 11.
So it will be informed by that as we think through but it's going to be something that on the loans were sent range I would assume that capital deployment opportunities.
At ice for US, we think that it's very easy to manage our capital was consistent and deploying income for weather tends to auto sales for us.
Got it thank you.
Thank you all right. Thank you everyone for participating and our call today on behalf of the anti management team I want to thank God for investors and analysts for participating in our call. Today I also want to thank all on employees for their continued focus and hard work done on it to all our stakeholders and.
For our customers and channel does for the loyalty and support we have issue on a safe and happy holiday season, and look forward to speaking with you again out of Q1 2021 call in February 2021.
Great day Bye.
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