Q4 2020 Bank of Nova Scotia Earnings Call
[noise] good morning, and welcome to the Scotiabanks Twentytwenty fourth quarter and full year results presentation.
My name is 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 the 10 or Chief Financial Officer, and Daniel Moore, Our Chief risk Officer for.
For her comments, we'll be glad to take the 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 from 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 for.
Thank you Phil and good morning, everyone I would like to begin my remarks today by revealing the bags progress over the course of fiscal 2020, I will then turn the call over to Raj to review, our financial performance and the 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 the cold and.
I would also like to recognize our employees for the for the 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 free 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 the third and his opportunity beginning.
Beginning with resilience and when the year began our repositioning efforts, we're substantially complete and we were poised to demonstrate for full earnings power as the 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 the very successful 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 and many important areas.
Our business operations performed extremely well.
We transition smoothly to remote work environments, our technology was robust and the 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 and 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 the played an important role and our resilience as a bank when one of our business winds and counter difficult business conditions and 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. The provide important diversification by 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 the 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 in our ability to verify the 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 tour of.
Retail customers.
And approximately 30 billion of the additional facilities to support our business customers the.
The 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 and.
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 the 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.
While the digital sales accelerate and took 36% for the year.
These digital trends will continue to play an important role in the future of banking we.
We look forward to provide the 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 the for us as we embark on the new fiscal year.
With any crisis comes opportunity for.
First we have multiple opportunities to either reduce for moderate expenses through efficiency and prioritized 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 the leading bank in the Americas. These.
The include organic growth and our existing businesses share buybacks, when they're permitted and acquisitions I am confident we will take advantage of the all opportunities that are in line with our strategy and enhance shareholder value with that I will turn the call over the rush to the Skus Sir.
The national performance.
Thank you, Brian and good morning, everyone.
I'll start on slide six.
All my comments that follow and coating the discussion of business line. The results will be on an adjusted basis, which excludes acquisition and divestiture of related amounts and.
And other adjustments outlined on slide 14.
The bank ended the year of and diluted earnings per share of $5.36.
Pre tax pre provision net income was down and modest 1% or up 5%, excluding the impact from divestitures.
Earnings from of PNC businesses was impacted by higher provisions for credit losses, non performing loans.
The lower revenue driven by the pandemic.
Global banking and markets and record earnings of all the $2 billion benefiting from strong revenue growth.
And prudent expense management.
[noise] Global wealth management, the earnings of $1.3 billion were up 7% year over year or 8% ex noting the pack of divestitures and event by higher assets under management from stronger net sales and market application and from an 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 from divestitures.
Moving to the all the 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 an increase of 39% from last quarter.
Revenue decreased 6% from last year.
For the more modest 2% from last quarter.
Net interest income declined, 2% and strong asset growth and higher contribution from asset light, but at the activities was.
It was offset by the core banking margin being down 18 basis points to 2.2%, reflecting low market and the administered rates in most markets you have the we are.
One of the quarter over 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.
The 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 and Canadian banking.
National banking and wealth management the.
Partially offset lower capital markets revenue, which had a record third quarter.
Prudent expense management led to a 5% decline year over year or 3%, excluding divestitures, you to know of professional fees and good.
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 PD, one capital ratio over the quarter the.
The bank the portion of the common equity tier one ratio of 11.8% improving the strong 50 basis points this quarter and 70 basis points through fiscal 2020.
This quarter of growth of 50 basis points was primarily driven by strong internal capital generation of 16 basis points.
And lower book size, mainly from higher the repayment of business banking credit and lower market interest risk weighted assets.
Turning now for the business line results beginning on slide nine.
Canadian banking reported adjusted net and net income of $782 million.
Strong rebound from Q3 last.
Year over year residential mortgages grew 6% no balances and personal loans and credit card and 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.
And by the Central bank rate cuts and changes to business mix.
Non interest income declined 7% you flow of banking foreign exchange and insurance fees and.
And by the week of economic environment.
Expenses for the Canadian banking were down 3% year over year, driven mainly by lower the advertising business development and travel costs.
The PCL ratio, increasing total we owed by nine basis points of 37 basis points, but declined quarter over quarter by 48 basis points.
Turning to the next slide on the International banking My comments that follow up based on results on a constant dollar basis adjusted for the impact from divestitures.
International banking reported adjusted net income of $218 million.
Compared to Q3 earnings increased significantly driven by lower provisions for loan losses.
Well the revenue grew 2% pre tax pre provision net 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.
While the 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 the Q3, though margin was stable.
Non interest income decreased 11% driven by lower banking and credit card credit card fees due to the snow done and consumer activity, while the investment gains and trading revenues, but higher year over year and.
Thank the Q3 non interest income increased by 18%, mainly driven by investment gains and the rebound and net fee and commission revenue.
The provision for credit losses was $736 million up 62% year over year, but down from 41% quarter over quarter.
Expenses declined 2%, mainly driven by the well personal and costs.
And on the cost management initiatives.
Let me highlight of in a challenging year interest from banking pre tax pre provision net income was modestly down 4%.
While the but something the Lions country short of hydro is in the and see and decreasing for me one.
Moving to slide 11, global banking and markets.
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 the.
The strong trading revenues and non underwriting fees over the last couple of quarters, the turn 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 lower personnel costs for the business line and.
Adjusted operating leverage for the year was 22% as GBM had record revenue, while maintaining strong expense management discipline.
Turning now to build and wealth management on slide 12 adjusted.
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 not international operations.
Assets under management was up 2% and assets under administration was up 4%.
Canadian aid and grew 5% and the feet per cent during the year.
The revenues were up 4%.
Excluding the impact from divestitures, but the 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 can the impact from divested operations.
Wealth management results and remain supported by strong investing.
The investment funds performance.
I'll now turn to the other segment on slide 17 the.
The results also include the gains and losses on divestiture and asset liability management activities. The.
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 and non interest expenses alone.
Ill now turn it over to Daniel will discuss the.
Thank you, Rob and good morning, everyone.
I will begin my remarks on slide 15.
Today, My comments will address the 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 concluded the Twentytwenty and the strong position with the stable portfolio.
Well reserved.
Our customer assistance programs have largely expire.
And the credit performance of the customers and exiting these programs remains very strong.
As we entered 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 through 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. The.
The total provision for credit loss ratio improved by 63 basis points over the same period.
This is consistent with our guidance and Q3 recall that we indicated the Q for PCL ratio was expected to be for low Q2 levels.
It's significant here to highlight of the impaired PCL ratio improved by four basis points to 54 basis points.
On slide 16 shows more detail and 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 in Q4 down nearly $1 billion from Q3, roughly 80% of the decline was driven by retail mainly from the international.
On the next slide we provide the additional details of our international retail credit performance by country.
Our PCL ratios improved significantly from 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 and are.
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 the 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.
Tenured into Q4 as more customers. This is for revenue expired now.
97% 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, our deferral of 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, what's the flat against last quarter and declined by three basis points year over year to.
The main reason with retail.
We saw the lower migration due to the customer systems programs.
And international commercial we saw a small increase driven by a single account formation.
I'm also reported slightly higher from nations, but these were offset by lower gilts and retail driven by customer systems programs in both Canada and and international.
On the bottom of slide 19, and see the all bank debt went off ratio has improved the 41 basis points down six basis points from 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.
In summary.
Three things are core to risk management of Scotiabank.
Firstly strongest of coding.
Secondly, having appropriate allowances and third being there for our customers when they need us most.
Our foundation is solid the 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 the 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.
Now 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 wage support programs pension fund withdrawals to name a few is unprecedented.
For example, the fiscal stimulus and Canada, the United States, Chile, and Peru has average 17% of GDP, well monetary stimulus in Mexico, and Colombia has averaged over 250 basis points policy.
Policy actions by governments and central banks across our footprint at the numerous decisive and powerful the.
Second is the impact of stimulus.
We are seeing clear evidence that the stimulus is having the desired impact across our footprint and.
And Canada retail spending has reached free pandemic levels. The housing market is experiencing robust growth and auto sales have 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 copper also bode well for Canada and the Pacific Alliance can.
The trees, where we forecast GDP growth of over five per cent for 2021 for.
Finally of vaccine will be introduced shortly well our current outlook does not rely on and effective vaccine being introduced in the 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 full earnings power of the bank.
Supported by a return to normal PCL levels and 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 Alliance and we expect international banking earnings to continue to grow through 2021 towards our target of earnings levels wealth management is very well positioned.
Yes, and to continue to grow in line with this year for.
Following the successful integration of our acquisitions and the strong fund performance in 2020.
GBM had record earnings this year benefiting from market conditions, and and elevated franchise from of Tiering client relationships and Mark and 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.
The 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.
Thank you, Brian well and 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 banking segment and you provided the symbol of view and I'll get outlooks for the markets. If the spoke of this question and two thoughts one given and going a lot of schools with limited well to the the liquidity the Lloyd has anything.
And that on the new and should be changed Brian and the all mind and dozens of the growth outlook for these markets for what could mean for Scotia and.
The second deadly.
And then back from my notes Raj and I think early on and the year before cool that you expected earnings by the for the international segment to the north of $500 million per quarter IDN idea in the bay different feedback will walk you all sort of whats the interest taken this interest feedback GAAP and we think about our 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 political situation and true has stabilized the new process for well respected and.
Is no and very well and political circles.
Good.
It's very and Pru I know whats confusing to look at us from an outsider but.
During our 20 plus years their governments change from center right to the center left and the economy's run from the center so.
If you look at it 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 and the Peruvian economy and the economy is kind of come back very strongly that's going to be voted by record copper prices, we see here today and.
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 and trade low levels of private debt.
Theres less fiscal drag than the developed countries.
And these countries have not had to raise rates to attract capital and that's 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 were starting to see it and you will see the flow through and our results.
So the agreement tried does talk on some of the earnings projections that we've talked about and then I'll pass it on and onsite if he wants to speak of what specific countries.
You're right we have indicated that the two earnings potential of the business should be north of $500 million per quarter, we agree.
On the very nicely doing $283 million this quarter and we see sequentially. This is going to continue during the quarter after quarter and brand.
If you want to put US day, I would say that $500 million should be achievable by Q4 of the Twentytwenty. One at net earnings is going to be driven by couple of five of those revenue growth is going to start because of the retail starts coming back which has been and drive because of the lack of economic activity, you're going to see the non promoted growth.
And on 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 draw for two basis points across the footprint. We don't see large margin compression ahead of us.
You might find a few basis points in the quarter. It 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 all findings of the National Bank, particularly when you think of what the Caribbean Central America, but also the us the pick the lions you've seen the non interest.
Revenue growth sequentially this quarter, and we'll continue to see that which is complete the link to the done on the economic activity, which is the same drive and that was really to the retail and coming back to the fossil footprint or would you not the.
Well I would just out of a maybe for your first question and complementing Brian's comments Ebrahim I think the interesting about who markets have responded well after the election and off of the point on the credit spreads in the second of seats and through issue. If all of the Centennial Bank after that for the year, a week ago and that was oversubscribed and I need.
The next year the record interest rate the right.
And relative to other emerging margin. So I think is the very positive signs of the markets have responded well you just going to be and transition government and we have been presidential election in April and.
I would also highlight that on the macro side of the continued growth of China.
We try and use the most important trade partner to Chile, and Peru, VCTS and positive and driver as well of the US the economic recovery for the next weekend for Mexican manufacturing exports.
And overall EPS Rush day I expect by the end of two of the 2021 will be around 500 media and in addition to the recovery of rods and recovery of the sand volumes I also expect expenses to be and positive driver as you saw in the for a year for your expenses.
Wind down and discussing and easy kind of the accelerated so daddy's, helping us to keep our hold of your PT pp for that in the Pacific Alliance countries.
Thank you.
Operating income in the next question. Please. The next question is from Gabriel Dechaine National Bank Financial. Please go ahead of good.
Good morning, Daniel Thanks for all the commentary on the.
The other PCL outlook and some goalpost as well I'm just wondering like we've been kind of condition. The expected the first half the be the peak or is some of the Q2 I guess for.
For the impaired provisions.
No it sounds more like 2021, and and the year could actually be into 2022, just want to give us sense of timing there and then the throwing the quick one on the expenses.
Do you expect the and.
Flat expense growth for the next year. Thanks.
Sure the real thank you I'll start with the.
Or with the the timing on the net write off and on the hand off the Raj of expenses obviously.
You are right, we would see we've seen that.
Net right off the start to increase.
That will continue into the into Q1.
We anticipate it would grow in the Q2 and and peak in Q3, given the government referral programs.
And the other impacts coming through.
And whats important here I think is that and as we look at the tour flow programs coming off our customers at the 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 the very small number of about $1.1 billion of our retail customers and as I said, we're seeing nice.
And for some of those in Canada.
Coming back to current.
90% of the commercial about 90% and international.
And that's what we've used the drive some of our analysis on our allowances.
And perhaps the also importantly.
We don't see a high percentage dependency on serve and those to flow expires. So we don't think theres any with the SEC, leading and earned from members either one of the number of Raj and all of them are on our expenses sure give and try to give you.
And then sort of perspective of how we see expenses flowing through and Twentytwenty one.
Mike one of the Twentytwenty to stock and so it gives you a bit of context 2020 and expenses grew only 1%. So that's a lot of.
The expense management discipline that the bank has we've always talked about it needs to go in line or take the skew from revenue as well as prioritization and we've demonstrated that in 2020, the expected 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 flacco compatible to the 2020 lots of opportunities across the footprint not checked off the local business and b.
Have opportunities can quickly get to make sense gains likewise, we have and the investments we need to make will and Canadian banking and GBM, but we have enough opportunities have cost the expense base nature of the that makes sense and also remains.
Mehdi low perhaps compatible to the 2020 levels and finished 21.
Alright, Thank you well go to another total coming up but the sooner so I'll leave it there and we're going to.
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.
Potentially pulling back from the marketplace and see how risk is going to sort of load.
Sure and.
Well.
Let's look at each one of the whole year, because I think it's very important to see that we had a 10% the increasing our loan book during the year and the east West same machine kind of that was driven by the growth of business banking and mortgages in the.
In the queue for we had any for tons the decline of 7% of business banking loans as a our corporate costs for the customers date back their short term license for dice Gdss temporary I expect now business banking and.
And a mortgage is to continue the good momentum into the 2021 and.
Due to the to the and then make the lock down say unemployment rising and watch the lower growth the actually only 2% growth whole year in on secured lending Doug will take and you will be the longer but I expect that a us economies recoveries and.
Will gradually come back comes at the end of thinking and see what we should be growing and Saudi and Lee both in wholesale and retail and I'm assuming current piece.
That's great. Thanks, a bunch of.
Sure.
Frankly of the next question. Please next question is from Mario Mendonca from TD Securities. Please go ahead.
Mr conduct and your line is open.
Hi, 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 and Pcls. Your your guidance and make sure I understand it correctly you suggested the pcls the pcls make there should be back to what it had been in prior years.
That that's from the 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.
The actually caused the performance of the total pcls ratio to be consistent with prior years.
Yeah, that's the dynamic obviously that we expect from the high for US not accounting Mario is that through this period. We've built are performing allowances as we looked at our force for portfolio forecast performance.
As you go into the realization of net write offs you have these accounts of migrate to these various stages and I for us nine and so as they migrate and move from performing sales one too and the stage three and some of those buildups and the performing offset by the increase and the stage three.
And as they go net write off and so that counter balanced 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 we'll when we look at these numbers and saying that while it's been a pretty dramatic credit story.
And Twentytwenty, that's always been written and we're now of done with the whole build.
Okay. So just going to the impaired than for a moment the increase in the impaired is there is there anything you can offer there.
Like how much higher than the than in prior years.
Just so we can get a flavor for the 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 well.
We'll be in line with the but less than our build and the allowances that we've had over the course of this year, because we're going to maintain some level of those allowances for the longer and during structural damage that we see and the economy. The can go beyond 2021.
Okay. Thank you.
Operating we have the next question. Please the next question comes from the Mark Saad Cormark Securities. Please go ahead.
Thanks, and looks like deferrals, and the international banking and not rolled off of quite as much as the expire.
The expected in Q3, maybe not for you could talk to which countries and extensions are granted and and if there's any risk of having the deferrals extended further and me.
Oh.
Part of the Mart, Yes, yes.
Yes happy to answer look and as Daniel mentioned the International last October 30, Onest, We had a 6 billion in activity for us, but I estimate that as of yesterday November 30. It will decline we have declined from less than three volume and 50% of debt related to mortgages.
Concentrated in Mexico, and cheating, where the program started later or were extended by regulation. So in other words in the March but as of yesterday, we should be 90 per cent of the balance of should have expired and the payment behavior of has been strong and are around 90% and current the.
It's also important part of the for him to highlight that the the early day when we draw of patients in the Midwest achieving has been the very possibly be to help customers resume their payments the type.
The amounts to more than $35 million in both countries. So overall, the FCC and programs have had and possibly the effect on the hill, helping customers regained their financial health.
Cash and particularly of the next question. Please.
The next question is from Doug Young day, All Bank capital markets. Please go ahead.
Hi, good morning, and I'll try to keep this quick the Brian you mentioned in your prepared remarks buybacks.
One way to deploy capital and acquisitions and so any thoughts that you can provide us in terms of when you might think restrictions on buybacks for dividend increases might come off and the when you think of acquisitions.
Lower down and the total recall when the 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 the book, allowing.
Allowing buybacks and dividend increases and the speech last week, but.
You know from our from our perspective, we have our two top priorities in terms of capital.
Allocation, our investing and 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 the Canadian banking and global wealth management in terms of our sales force there as well and there is lots of opportunities for us to invest and and in our own business. So thats the 0.12nd would be for share buybacks. We.
I think our stock and evaluation 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 the do with any luck acquisition or potential acquisition.
The is just sheer speculation we're focused on are driving around the business here right now.
And thank you.
The operator, we of the next question please.
Next question Dark Goldman Leach RBC capital markets. Please go ahead.
Hi, there. Good morning, My question is for Dan Moore and the.
Maybe maybe Dan as the preface this is to help me understand the adequacy of your reserve.
So I'm looking at your deferral program and what I'm interested in is.
Not the percent 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 losses, we know that stack 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 the.
They are the cash flowing and and we feel good about the.
Return the current for those for those customers secondly.
Your question was on the coverage and how we feel about the coverage we've had darko, 63% built and are performing allowances over the course of this.
We feel that's very adequate and a couple of metrics to you know to your question on the first of all I look at business banking, we've got 20 quarters of coverage no. Realizing obviously historical losses, when coupled with the future losses that feels pretty good.
Secondly on.
On the talk of the exposure.
Expired customers, if I assume the.
All of those expired customers.
Oh Oh.
All the 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 the land drilling would go fully into net charge offs, so pretty conservative assumption for the whole for for the them.
On retail.
I've got for cards, two times coverage and the 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 of young metric. We can you start to think about how strong the allowances are and that's what gives us confidence in our outlook and our credit card of going forward.
Okay, So just to be clear debt.
The the numbers that are currently have not made of payment.
They are the currently not classified as and there how big is the is that number across the year.
Across the various books.
The current the it's less than one of its about about or less than 1% for from.
On the customers that have not made the payment that have expired and returned the current.
Okay.
Okay. Okay I may follow up let me follow up with the thank you.
Okay. Thank you.
Operating the way. The next question. Please the next question Scott Chen from Canaccord Genuity. Please go ahead.
Good morning, maybe not so just on the international and maybe kind of tying with the expense comment I noted the notice the branch count was that was down significantly and.
The kind of acquainted for.
For all of 10% quarter for quarter, how much of the that was due to the divestitures and how much of that was due to core kind of five core.
For from from from your actions on your part.
Well I would say.
And as cost it has to do mostly we did the each other maybe there so the impact of the of the integration Seanergy, but really it is because of the weight consumers have adopted the technology the to call. It the east.
Truly unprecedented and we have seen in the Pacific the lightest countries for the average age of our customers. It's around 30 years old and tremendous growth both in digital adoption.
Has gone from 35% to 46% and detailed sales that's kind of gone through 30% to 50%, so vcs and trend that accelerate debt, but if you see our for last for years, we have reduced gradually our branch network, but for by 150 branches in the past for years. So the.
Accelerated during the hearing Green coffee view of two guys generation of the ranch.
And just continue to play a key role and actually the.
And one of the key changes that we are Onboarding did you tell the customers and to end the branches and that is increasing and not only customer experience, but he's also increasing part of the TVT and improving efficiency. So VCC and this is what has happened and I expect that these will continue more gradually in the future years.
And I expect our expenses will continue to go down in 2020 Watt and Twentytwenty one.
Great. Thank you and.
Operator for the next question. Please next question is from Sohrab Movahedi from BMO capital markets. Please go ahead.
Hey, Thanks, just wanted to go to and then Reese is he's.
He's had it easy and little bit to kind of catch up and then Dan.
Yes, Brian mentioned in his remarks that theres 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 it both from an earnings and maybe of volume.
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, specifically Im speaking about mortgages or real estate secured.
I think program and general where we have the.
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.
Turn off the 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 and our mutual fund business as well as credit cards and insurance were undersized and we still see opportunity to return to our natural share. So in addition of those comments I would just double underline Quebec, 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 in Quebec and the performance this year and expectations for next year continue to be very good.
And and just on.
On the margin you think you should be able to maintain and given the 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 2001.
Sorry for that would be spent the fixed debt margin in Q4 was 226 basis points. That's what we expect to continue to of 2021 for the bank.
Okay. Thanks for that clarification.
Okay. Operator, we of the next question please.
Next question is from Paul the RBC. Please go ahead.
And I will try to keep this quick as we as we think about the international banking and the return to that 500 million core.
Quarterly run rate want to go to the understanding of how travel and the FX transactions and other.
Fees, you generate from travel might play into that like to ask to assume a return to the normalization and travel or are there offsets such as the expense reductions you've been focusing on the 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 skewed to day in Q4 20 per cent be low power fees and commissions is and we've got the year. Our goal. So I see makes us an opportunity that piece of GAAP will gradually reduced cash based the economies recover and net.
I'd say it has been already of strong rebalanced and actually we had an 8% increase the net fees and commissions in the quarter. So the she's going to be the gradual recovery of of course has traveled recovers particular and the Caribbean that will have a significant positive impact and the second half of Twentytwenty one.
Okay. Thank you.
The operator, we of the next question please.
The next question is from Mike range.
I'm kind of Swiss secure ex Kennedy. The please go ahead.
Hi, good morning.
The back to not show on the Pacific Alliance. So I'm just focus the bid on the commercial loan growth and I know, it's been the challenging period. The 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 underperform and so I'm wondering if you can talk a little bit.
Just the on the high level looks like there is some sort of de risking going on.
And just given that your performance versus peers can you provide some color and not please share.
Sure no and it's a good question, but I I really feel okay, I'm, sorry, I feel very comfortable of our level of growth. There is some distortion of growth because of the bulk of government the currency programs from new lending and some of our appears kind of a greater participation and I feel very comfortable of the level of per day participation because we from.
By the need for our clients that need but if you exclude that I think we are performing word, but nothing to Pearson and we the we have a good and bad for US we profit WT actions the actually our performance relative to peers in terms of revenue in terms of name in terms of ERP is very strong in the for in the Pacific.
And just countries, especially in Mexico, and Chile watch the saying a support from government programs of Sars I I expect you will continue to see our growth aligned with the margin.
And retail accounts I mentioned already Cassie assay will be lower but he will gradually peak off of the customers come out of cost from resi, some programs and employment recovers and CD sort of ready trending.
Great. Thank you and color.
Okay. Operator, we have one more question and I think this will be the last question.
Thank you for the last.
Question will be from Ebrahim Poonawala from Bank of America Securities. Please [noise].
Hey, Thanks for taking the question again.
So Brian you mentioned the capital deployment, becoming affect the next year.
I was just wondering if maybe you can address.
And the 11.8%.
What's the outlook in terms of as impairment slides RW inflation impact on on the capital ratio and remind US where you think the bank should the operating 12 months from non list. The macro outlook is improving what's the steady state seat the one that you'd like to operate the bank debt. Thank you.
Thank you Brian and.
The strong capital rebound this quarter as you saw 11.8% I thought the onea of what's that weighed on the C. When the economy, the coas and so on what could be the structure of damage the across our portfolio. The analysis of all all of it seems to indicate it's no more than 40 basis points Ebrahim and when we think about capital deployment that will happen next next year.
The growth, but also the backup and strong internal capital generation, which as you know is about 10 basis points for the quarter for the as bank. The normalized earnings we think of capital ratio will be certainly north of 11 25 flow so to what 11 foggy and 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 trust debt 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.
And we'll be informed by the as we think through but it's going to be something that on the 11% range I would assume but the capital deployment opportunities.
At ice for US, we think that is very easy to manage our capital was consistent and deploying it for.
The weather does brought us a orders.
Got it thank you.
Thank you all right. Thank you everyone for participating in 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 our employees for the continued focus and hard work to double the to all our stakeholders and.
Customers and channel does for the loyalty and support Weve issue all of the safe and happy holiday season, and look forward to speaking with you again out of Q1 2021 call in February 2021.
Great day everybody.
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