Q2 2022 National Bank of Canada Earnings Call
Speaker 5: Good morning, Ladies and gentlemen, and welcome to the National Bank of Canada's second quarter results conference call.
Speaker 5: I would now like to turn the meeting over to mrslogist, Senior Vice President of an enerstor relation.
Speaker 5: Please guahead, MRS blanchet.
Speaker 6: Thank you, operator. Good morning everyone and welcome to our second quarter presentation.
Speaker 6: Presenting this morning our laafheha President ency of the bank madishaltajagha, Chief Financial Officer, and Bill baranll, Chief Risk Officer.
Speaker 6: Also joining us for the Q an session R steanassha and DC blanche, cohead of PNC banking. manganong health of wealth management. The onesjahuis had a financial markets G nappaaha had of international and janashnne ciuvp finance.
Speaker 6: Before we begin, I refer you to Slide two of our presentation, providing National Bank' caution regarding forward-looking statements. With that, let me now turn the call over to laat.
Speaker 7: nestedinda and thank you everyone for joining us.
Speaker 8: This morning we released strong quarterly results with earnings per share of $2 and 55 cents.
Speaker 7: Adjusted pretax preprovision earnings were up 11% from last year, supported by contributions from all of our segments.
Speaker 8: We delivered an industry-leading return on equity, above 20%, reflecting our continued focus on profitable growth, our disciplined approach to capital deployment and strong credit quality.
Speaker 8: The environment in which we operated during the we operated during the second quarter was marked by an increase in uncertainty and market volatility.
Speaker 8: The bank's consistent performance, and this environment underscores the resilience of our franchise and the diversification of our earnings streams.
Speaker 8: Over the past few weeks, the macroeconomic and geopolitical environment have continued to evolve and new uncertainties have been introduced.
Speaker 8: Interest rates are now expected to increase more rapidly than anticipated.
Speaker 8: And market consens us relative to the possibility of an economic slowdown has increased.
Speaker 9: While this is not our base, our base case scenario, these risks are more present and are being taken into account in our decision-making process.
Speaker 9: That being said, in the current context, we take comfort in our overall strategic position.
Speaker 8: First.
Speaker 8: Our domestic focus.
Speaker 8: Canada's underlying fundamentals are strong. Our economy is well positioned on a relative basis due to several factors, including the importance of natural resources, high commodity prices and unemployment rates at historical lows.
Speaker 10: Second our unique business mix, underpinning our strong and resilient earnings power.
Speaker 9: And third, our discipline when it comes to capital risks.
Speaker 8: And cost management. The bank is in a solid position. We generated positive operating leverage in Q2 and.
Speaker 8: Our capital levels are strong and we continue to carry significant credit reserves which, along with our prudent itionpositioning, gives us comfort in the current environment.
Speaker 9: We ended the second quarter with a robust C one ratio of 13%.
Speaker 8: Providing ample flexibility to invest in our businesses and to actively return capital to shareholders through sustainable dividend increases and share buybacks.
Speaker 8: This morning we announced a five cent or 6% increase.
Speaker 8: To our common share dividend, bring it to 92 cents.
Speaker 8: We are committed to delivering sustainable dividend increases to our shareholders, demonstrating the earnings power we see in our business model.
Speaker 8: During the second quarter, we repurchased two million shares.
Speaker 8: National Bank has a strong record of delivering superior value to its shareholders.
Speaker 8: Over the long term, and this remains a priority going forward.
Speaker 8: Turning now to our business segments.
Speaker 8: Personal and commercial banking performed well, with pretax preprovision earnings up 10% over last year, supported by strong balance sheet growth and client activity.
Speaker 7: On the retail side, mortgage loans were up 9% year-over-year.
Speaker 8: With monetary policy continuing to tighten, we expect our exposure to the Quebec market to be favorable, both from a growth and credit perspective.
Speaker 7: This is based on the relatively strong economic fundamentals of the province.
Speaker 8: Housing affordability and successful social measures put in place over the years.
Speaker 9: On the commercial side, lending activity remained strong, with commercial loans up 18% year-over-year.
Speaker 11: As we look ahead, the outlook is favorable.
Speaker 12: We will nonetheless remain very disciplined in balancing growth margin and credit quality, especially in the context of rising interest rates and evolving macroeconomic trends.
Speaker 13: Our wealth business generated a solid performance with revenues up 7% against record transaction revenues in the same quarter last year.
Speaker 7: We saw particularly strong growth in full service brokerage, as well as higher net interest income on the back of volume growth and interest rate hikes.
Speaker 9: Expenses are up 10% from Q2 last year, reflecting a significant shift in revenue mix and continued investment in the business.
Speaker 14: Financial Markets delivered very strong results again this quarter, with revenues of six hundred and thirty-two million.
Speaker 9: The performance of global markets was strong, with continued momentum in structured products.
Speaker 9: Corporate investment banking generated good results against.
Speaker 7: Excuse me, against a quarter record performance last year.
Speaker 8: And in the context of a slowdown in equity underwriting and MNA activity in the market.
Speaker 15: Over the last few years, we've demonstrated the strength and resiliency of our financial market business.
Speaker 7: Over time, we have diversified and expanded its earnings power by investing in our people and technology and by developing new targeted revenue sources.
Speaker 8: We are confident that the expertise of our team and our disciplined strategic focus positions us well to consistently deliver growth through market cycles.
Speaker 9: Turning now to our international segment.
Speaker 9: This quarter. Once again, ABA bank delivered strong results.
Speaker 9: The economy in Cambodia is progressing well towards pre-COVID levels.
Speaker 16: Healthy GDP growth is anticipated this year and next, while longer-term projections are among the highest in the region.
Speaker 8: The country remains underbank and also benefits from strong demographics.
Speaker 8: All these factors will continue to support growth.
Speaker 8: For a B.
Speaker 2: Turning now to our specialty finance business in the S.
Speaker 8: Credigy delivered a solid performance this quarter, with revenues of one hundred and Twenty million.
Speaker 9: Reflecting strong underlying portfolio performance across asset classes.
Speaker 11: This was partly offset by the impact of rising interest rates on asset at fair value.
Speaker 9: Total assets decline from last quarter, reflecting maturity of certain loans and reduced client activity in the context of heightened uncertainty and interest rate volatility.
Speaker 11: In the current environment. The team continues to exercise strict discipline where opportunities do not meet our risk reward objectives.
Speaker 8: ceniggy remains highly selective and will not compromise on risk.
Speaker 11: Returns and ROE over asset growth.
Speaker 17: As such, investment levels should moderate over the next few months, which may impact revenues in the second half of the year.
Speaker 11: We remain confident that this environment will nonetheless create opportunities for credit.
Speaker 11: The business is well positioned to deploy capital and grow assets once attractive opportunities materializes.
Speaker 18: In conclusion, while we are mindful of the uncertainties ahead, the bank's strategic positioning and performance track record through market cycles gives us comfort.
Speaker 8: Our balance sheet is in great shape, with strong capital level and substantial credit reserves.
Speaker 11: Our franchise is strong, with attractive growth opportunities across our business segments.
Speaker 16: With that, I will now hand it over to my shotata who with joining us on the call for the first time and lhasbbeen CFO since April first.
Speaker 19: My no dou, as over 20 years of experience with the bank, where she held leadership positions across the organization.
Speaker 20: I shall down, welcome and overre you.
Speaker 21: Thank you. L I'm very excited to be here and I look forward to maintaining and building strong relationships with the investment community.
Speaker 22: Now turning to our results on Slide seven.
Speaker 22: The bank delivered a strong quarter, once again supported by the resilience and diversification of our businesses.
Speaker 22: Revenues increased by 9% year-over-year, with all segments performing well.
Speaker 22: Pretax preprovision earnings grew 11% year-over-year and we achieved positive operating leverage of 1%.
Speaker 22: The waterfall chart on this slide outlined our expense growth category.
Speaker 22: Let me provide some color on the main item.
Speaker 22: First the increase in operational costs is tied to our business growth.
Speaker 22: Specifically since the beginning of the fiscal year, we have invested in people in line with the growth of all segments.
Speaker 22: The base of hiring has moderated significantly entering the second quarter and we estimate that we are now cloubed to sailing level.
Speaker 23: In addition, over the past few quarters, we have increased salaries and repositioned certain roles in order to retain and attract the best talent in a highly competitive environment.
Speaker 24: Second our spend with regards to strategic technology investments has increased.
Speaker 22: We have been successful in expanding transversal capacity in the execution and delivery of projects aimed at growing and protecting the bank.
Speaker 22: Let's now take a look at our main investment areas.
Speaker 6: And personal banking investments are directed towards enhancing and personalizing the client experience to accelerate us acquisition as well as increasing our overall client engagement and satisfaction.
Speaker 6: In commercial banking, we are modernizing our payment engine and investing in our cash management platform.
Speaker 23: In wealth management. We grew our investment envelop significantly over the past two years, driven by foundational projects to increase end-to-end process efficiency and scalability, as well as projects to enhance client experience.
Speaker 23: And financial markets. We continue to expand activities in areas of expertise and diversify our revenue stream.
Speaker 22: Other areas of significant investment pertained to the evolution and automation of our operation, to cybersecurity, and to addressing and evolving regulatory landscape.
Speaker 25: As we look forward. We are excited by the top line growth and efficiency gains made possible by these investments.
Speaker 23: National Bank has a strong track record of delivering superior PP growth and our investment positioned us well to to continue delivering strong performance.
Speaker 22: As it isusttrated on Slide eight.
Speaker 23: Expense management remains the priority.
Speaker 6: Our teams are very disciplined and some of our segments achieved best-in-class efficiency ratios again this quarter.
Speaker 6: In addition, the team constantly works on the identifying and realizing efficiencies in our expense base, especially in an influtionary context.
Speaker 22: We have been successful at balancing revenue and expense growth over the year. We maintain our positive operating leverage target for fiscal 2020 -two.
Speaker 6: Now turning to capital on Slide nine.
Speaker 6: We ended the quarter with a robust CT one ratio of 13% of 14 basis pointing, sequentially reflecting strong internal capital generation.
Speaker 22: Our solongid capital level provides us with flexibility to support business growth and return capital to shareholders, especially in the context of macroeconomic uncertainty.
Speaker 6: Looking now at our second quarter results in more detail.
Speaker 22: Net of dividend, the bank generated 54 basis points of capital.
Speaker 22: We repurchased two million common shares under our NCIB program, which reduced our CT one ratio by 18 basis points.
Speaker 23: Strong organic RWA growth representing 33 basis points was partly offset by the following two items.
Speaker 22: First we recognized favorable rating migration representing 17 basis points, primarily following the review of nonretail portfolios and from derivative exposures in our counterparty credit risps.
Speaker 6: Second model updates added three basis points to our CTP one ratio on an end basis.
Speaker 23: In conclusion, the bank delivered a strong quarter with solid organic growth, industry-leading ROE and high capital level. The bank is also well positioned to navigate an uncertain macro in environment and to support continued growth.
Speaker 23: With that, I will now turn the call over to Bill.
Speaker 26: My matter, shuntau and good morning all. I will begin on Slide 11 to review our provisions for credit losses.
Speaker 27: The exceptional credit performance that began in the latter half of last year continued in the second quarter. Pcl's onunimpaired loans were just $28 million, a $4 million increase from last quarter.
Speaker 11: At six basis points. This level remains well belower normal prepandemic impaired PCLs and just two basis points above the cyclical low in the fourth quarter last year.
Speaker 11: This strong credit performance was evident across all our domestic retail and nonretail portfolios.
Speaker 27: In the international sector, impaired provisions remain stable, ataccrediggy and increased by $4 million quarter-over-quarter at ABA bank as the end of pandemic-related deferrals led to some migration to Stage three.
Speaker 27: In the second quarter, PCLs on performing loans were a net release of $27 million.
Speaker 11: The primary drivers were positive performance trends and credit migration, which were partially offset by an increase in our management overlay to account for increased uncertainties in the macro environment.
Speaker 27: Looking ahead, our outlook for impaired PCLs for the full year has improved.
Speaker 11: This is supported by both the excellent performance year-to-date and by strong underlying trends that are generating low delinquencies and positive credit migration.
Speaker 27: Accordingly, we revised our target for full fiscal year impaired PCLs to below 15 basis points.
Speaker 27: At the same time, our outlook for performing PCLs has become more cloudity, as uncertainties in the economy's future path have increased in recent weeks.
Speaker 11: Inflationary pressures, supply chain challenges, geopolitical risks and the speed of interest rate increases have all contributed to greater uncertainty.
Speaker 11: In these uncertain times, we remain very confident with our defensive geographic and business mix, as well as our prudent level of allowances.
Speaker 11: Turning to Slide twelve.
Speaker 27: Our total allowances for credit losses declined by 3% to just over $1 billion in the second quarter.
Speaker 11: Performing ACS of $821 million remain elevated and represent nearly eight X the last 12 month imared PCLs and two point six X our prepandemic level of compared PCLs.
Speaker 27: The small release of performing acales. This quarter takes our cumulative release of pandemic build to 50% and.
Speaker 11: We continue to believe it is appropriate to carry these significant credit allowances in the current macro environment.
Speaker 11: Turning to Slide thirteen.
Speaker 11: Gross impaired loans were stable last quarter at $611 million or 31 basis points.
Speaker 11: Lower formations in our domestic portfolios were offset by higher formations at ABA.
Speaker 11: We mentioned on the Q1 call that the expiry of penemic-related deferrals in Cambodia began to generate higher formations and that performance was matching our expectations.
Speaker 27: That has continued in the second quarter, with ABA formations increasing to $37 million.
Speaker 27: Since it's been quite a few quarters that we discussed our Canadian pandemic-related deferrals expiring, I think it would be helpful to provide a little color on ABA's deferrals.
Speaker 28: Aba loans under deferrals peaked in the third quarter of 2020 at about 17% of total loans, similar to the peak we saw in mortgage deferrals in Canada.
Speaker 27: In Q2, the percentage of loans still under deferral was down to 7%.
Speaker 27: The vast majority of deferrals were on principal payments only, meaning that clients continue to pay interest during the deferral period, and of those deferrals that have already expired, about 90% have returned to current status or have been fully repaid.
Speaker 27: All remaining deferrals will expire before the end of 2022. as they expire, we expect formations to increase and should peak in the second half of this year, then declineed going into 2020. -three.
Speaker 11: These loans are well collateralized, well provisioned and so far the performance has been right on our expectations.
Speaker 11: On Slide 14, the details of our restal portfolio are provided. The portfolio remains overweight Quebec, which benefits from resilient characteristics such as relatively affordable housing, lower consumer debt levels and a high percentage of dual income households.
Speaker 11: Employment and demographic trends remain supportive of continued good performance across the portfolio.
Speaker 27: In summary, we are very pleased with the performance of our portfolios in the second quarter. While uncertainties in the path forward for the economy have increased, employment conditions and economic growth remain supportive of continued good credit performance.
Speaker 27: We remain very comfortable with our portfolio's resilience. The diversification of our earning streams and our prudent approach to provisioning with I will turn it back to the operator for the Q a thank. You we now ll take questions from the telephone lines if you have the question and you're using us because Please leave you and said before making your selection.
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Speaker 2: The first question is for any gomment from scoshaping. Please go here.
Speaker 29: Good afternoon question on commercial loans. Very strong year-over-year growth, But if I look sequentially it does look like it's decelerating and compared to the peer group on a sequential basis more towards the lower end of the peer group in terms of growth. And I'm just wondering: is that in any way a deliberate move, any way driven by some risk considerations that you may have in terms of the outlook for the commercial lending business?
Speaker 30: I an it's found good question. Actually it's not related to that entirely and I'll go back to the risk side, but it's purely because our commercial numbers, as you know, include our governmental business and there's been, there's been changes in some of the governmental funding strategies in many areas. So we've seen a large decline in volumes, largely because also governments are receiving much more tax revenues than anticipated. So if you exclude governmental banking, the sequential que over Q in commercial business is actually 4% growth, which is very robust, there's being said, in the environment and the uncertainty, we remain very prudent from a risk perspective and very selective, So being middle of the pack is what we like.
Speaker 29: That sounds good and then if I could just ask a capital question because why not and.
Speaker 31: The C T one at 12.9 on a pro pforma basis is at the top end of the pure group, and so really begs the question. Just to revisit your outlook for M N a specifically, I'm wondering if the current environment is an environment where you would rather not to M N a, where you feel that keeping the powder dry is the prudent thing to do. And then I have a follow up.
Speaker 32: It's your question. Thank you for the question, but to your question on MA, we haven't changed our approach.
Speaker 7: So I repeat what we consistently say: we like our businesses, we like the strategic choices we've made, So we're really focused on organic growth and then obviously, the returning capital to shareholders. But yes, we always keep an eye on the market in terms of MMA, and the market could potentially be more interesting in the future, but we are. There is also a lot of uncertainty in the market, So prudence is is the guiding principle here.
Speaker 7: So but So I don't know if that answers your question but.
Speaker 33: In terms of your outlook for a floor where you'd be comfortable taking the CT one down to with the current environment, changed that thinking? Is there a specific level? Is 11% too low in your mind to theoretically take down your CT one ratio? What's the right floor, a seate level in this lement? Yes, Thank you again. Given the current uncertainties in the market, obviously we're very happy and comfortable with our current capital level.
Speaker 34: So yes, I think I think 11% of the hand Le would. It's not. It's not a level that we're thinking about, are striving for.
Speaker 35: Okay and then just, I know you have the, you still have the moratorium on the, the international M N a, but what's the justification for that? I mean just given how strong your capital levels are, and then also, given the fact that you know the a B, a business in particular is gone through this big test and his, you know, looks like it's passed with flying colors, what's the? What's the consideration there to to keep that, our moratorium? You know it's a question of focus. Many we really like our, our businesses right now and you know we're going going keep focusing on them. We see, you know obviously, growth ahead with our, with both a B a, M and categy. So you know we're not going to change that strategy for now, So we're going to keep our atorium.
Speaker 36: bainf.
Speaker 2: ok the next question. Paul holdon C ABB C. Please go ahead.
Speaker 37: Thank you good morning. So throughout your commentary, your reference the certain economic outlook, which you think we can all agree on, and then lauron, you said it's impacting your decision making in actions right now, and I think credigies is an obvious example of that. Maybe your answer on commercial loan growth also an example of that. Are there other examples of where you're pulling back a bit on risk?
Speaker 2: Thank you for your question.
Speaker 38: No I think the risk appetite is is the same. Our strategy is the same. As you can tell, there's good momentum in the market's A. it's a strange world right, you have a strong economic facdrop and the business and tons of pessimism about the potential recession. So I think what's important is remaining prudent and how we deploy capital and, I think, the reserves, that our credit reserves- where they're at at this point in time. I think it's the right thing to do so. I think the overall strategy doesn't change. Do we keep an eye on interest rate sensitive areas? Obviously, do we keep an eye on leverage in the system? Obviously. So those.
Speaker 8: Those are maybe some color I could add.
Speaker 39: Okay second question is with respect to financial markets. Another strong quarter there and better than most of your peers. You talked about strategic investments and why you should grow through the cycle, but wondering if you can point to what factors drove the strength, particular strength, in this past quarter.
Speaker 40: Thank you, pause. Think you about a question: diversification. It's all about thediversification and how we manage the risk and we develop the business through in the course of the cycle. Then this time around, once again, we were good in term of how we manage the ability of the market for the last two quarter. What about the same revenue in equity if you compare Q1 to Q2? But at the same time there's some other businesses that slowed down a bit because of the validity. But those business we believe that they may come back down the road and we keep investing in some niches here and there to be sure that we have that equilibrium, that over the years a pay off for National Bank and not a big changein of strategies is just one step at a time and we continue to to invest in our business through any cycles.
Speaker 41: Okay the last question from me. It relates to Slide, Slide twelve.
Speaker 42: Which provides a good perspective on where you're performing ACLs of being and where they sit today when you run your stress test, let's say for a mild-type recession.
Speaker 42: How much would those performing allowances need to increase roughly between the eight twent 21 today and the little over a billion as of Q1 onetwenty ine? They don't need togo all the way back to Q1 21, but can you giveves a sense of how much they might have to incre between now and then what that prior number was?
Speaker 43: Thanks it, Bill. Thanks for the question, Paul. I'll try to approach that. I understood the question I one was in terms of if, if there was my ild recession, what the impact would be on performing a als. Is that one question? Yes, So I think the you know, you can see a description in the M D N a notes about our pessimistic scenario and I think there's some sensitivity numbers shown there where if our, if our pessimistic scenario became one hundred percent weight, then it's a around $3 million, I think, in in the sensitivity. So that's, that's a ballpark and that would be expected to happen over time. Now, when I think about the size of the allowances in the prudency, I often think about it and we talked to you see in the slides and we talked about it about in relation to impaired P C's and run rate. So just for a little history on on our E for us nine performing allowance Bill, if you remember, we started off in I for us 9, two and 18 from already a pretty good position. We had our sectoral allowance in two thousand and sixteen that wasn't fully used. So we started off at a pretty good point and I think the the ratio of our performing allowances to run rate P C in two thousand and nineeteen, before the pandemic goes around, one point eight, one point nine times.
Speaker 11: That on translating that that meant we hadn't. We had allowances that would cover two years, almost two years, of impaired PCLs.
Speaker 11: At the end of 2020, after a significant Bill we had that brought up to about three times of the imired CL in the last twel monsand. That that ratio included the impact on denominator because we had some of the pandemic impaired P CLS are relevated, elevated and you know now here in 2020 two, if you look at the, that ratio over the last 12 month impaired B CLS is really high but that's because the denominator really low. So we refer to it in the, the slides, and we think about it more in terms of our run rate prepandemicand. You'll see in the slide we're running about two point six times that that rate. So that feels like a pretty comfortable level. It gives some room to absorb potential negative events in the in the future if the outlook changes. And we also think about one difference in from prepandemic to now is in terms of business mix. So if we look at our portfolio now, we have less consumer unsecured because of the prepayments, high pay downs on the credit cards and and we had more growth in the in the mortgages, which is lower consumers, So it gives even a little more comfort with that number being being high. So you know, I hope that helps. But in the potential paths ahead, base case is still for lower but good growth and we have a pessimistic that you can see is for a downturn and and we think that if the, our outlook shifts in terms of a greater proportion of the, the downturn or even worse than the downturn, we'll be happy that we ve started with the good allowance levels that we have now.
Speaker 42: That's a hopeful answer if think you built that there for me.
Speaker 2: Operator are there any other questions for us?
Speaker 44: I'm sorry. Next question is from saram movheady, vmmo captital markets. Please go a.
Speaker 45: Thank you. Maybe one question first for for the, for the, for the team, maybe long you can answer that once. one up point. A time I think you had said that this? U's international banking, the? U's special prefinance and the international banking segment.
Speaker 46: You know, had a a few years ago. I think there was a target up maybe.
Speaker 47: 10% or so off to total bank earnings.
Speaker 48: Obviously has had pretty good growth. I'm not doingvinging up AB from croi, I'm just looking at totality.
Speaker 48: And maybe it's closer to.
Speaker 47: 16 17%.
Speaker 46: Is there any revised or renewed guidance worthre sharing as to what sort of overall proportion of the bank?
Speaker 46: You're comfortable letting these two businesses get you.
Speaker 32: It's the sort of Thank you for your question and.
Speaker 49: When you, if we said in the past a certain percentage, often it's an initial target of where we want to end up, but maybe we don't manage our businesses by setting targets.
Speaker 8: Percentages. If you look at the performance of our business makes- and that's really the way we look at it- you know the balance between our wholesale business retail, commercial wealth and in the strategic choices that we make in, then it's really about the overall performance and that's that's the way you should look at it as well. So, where we see growth momentum, you know we invest and right now, like you know all of our businesses and as you can see, I think all of our businesses, our contributing and you. That's it. So no, we don't have a set target.
Speaker 50: As you know- and we've talked about our strategy- we have our focus of growing our Canadian banking franchise. We think that there are tons of opportunity in Canada and the team is focused on that and a lot of the investments in technology and people are towards growing our business in Canada as well.
Speaker 7: So not without setting targets. We're really, we really like all of our businesses and we want to grow all of them.
Speaker 48: So maybe target was the wrong word, but you're comfortable, I suppose, as a team, if this segment continued to provide above-average growth and continued to drift higher.
Speaker 51: As a as there as a proportion of your world that curred.
Speaker 52: Absolutely.
Speaker 53: Okay and maybe it's for you laur maybe. It's for Bill maybe it's for again for the team I'm not sure but prior to the pandemic.
Speaker 47: I think the bank would talk about how you're making some really risk decisions and not pursuing growth longerth. In particular. I think you would have talked about because.
Speaker 51: Whether it was a competitive pricing or maybe because of the structures or the terms of some of these.
Speaker 51: Available opportunities. That showed quite a bit of discipline. As you sit here today, I think you answered this party to one of the earlier questions, but is there any need to show restraint here right now, or are you?
Speaker 47: Are you just not seeing?
Speaker 48: The types of- I'll call it- kind of factors that you had seen back prepandemic. That would have necessitated.
Speaker 46: Moderating.
Speaker 2: No good.
Speaker 54: ides are ID Bill. Maybe I can can start off on that. 1- the you're right about what we you know approach, prepandemic, as we were getting late in the cycle that we talked about holding the reins and but just just generally on on the approach, and I think you've heard about heard a often this week it's it's not to change specific underwriting criteria as those. We try to be very stable and disciplined in those through the cycle but there are a couple of levers that can be pulled. one of the more longer term and but I think it's an important one and those are the decisions on business mix.
Speaker 27: So what businesses we're in, not in, and what, what we're overweight and not overweight, and those are very, very impactful decisions and those are more aligned with long term risks and opportunities. And then the other one I'll point out in terms of near term impacts is is how we allocate balance sheet and capital and limits as a, as an important lever and prepandemic. When we talked about holding back the reain, that means that we didn't necessarily say no growth, but we, we gave room for little bit of growth and and keeping the growth may be less than what the opportunities were, that we're out there and, as you pointed out, our discussion, but crediggy. That's a discipline and that approach is happening now. And and the the other important comment I'll make, or AP, is that what gives, gives one the bity and makes it easier to to use those levers, is the diversified, diversification of the franchise So that there are always different earnings streams that can continue to grow the customer base and franchise, even if you're holding back on on certain areas. Fans, your questions are up. It does, can I? Just I don't want toche up the time too much if I can just fall off on that bill. Like you know, sometimes it's our like, ational determ, the like. Are there instances where you know, as a collective team, you're seeing, you know you're guiding the businesses to create?
Speaker 2: Will.
Speaker 46: Without increasing limits for them, or are you comfortable increasing limits for them in the current in mind?
Speaker 55: Well I think again, given the benefit of our broad servvice videarings, streams or certainly areas that continually growing very, very nicely. You've seen that performance here. I'd flip it around a little bit and say you when we're, when the uncertainty in the future is greater, will we really try to do is, as a deames, think hard about what you know. We CAn't predict exactly what will happen, but we can be very rigorous in understanding what the potential impacts are if those happen. Some of those you thoughts and discussions will lead to maybe holding the rain tight. Others will be getting insight into opportunities that we think we would like some dry powder to to fees later. So it's a mix or up.
Speaker 45: Thank you.
Speaker 56: Thank you. Next question is njol de souza. Very Tal investment research. Please go ahead.
Speaker 57: Thank you, good morning. I had a quick clarification question course for you on your L T V disclosure on Slide 14. when I look at the helock component to L T V', S that's below you uninsured L? V and baseds on the footnote there, T V's calculatedis on the authorized ment that, not the outstanding balance of the. He also just pointedof their clarif. Am I interpreing that correctly? Includes the mortgage balance on the L VS are lower and the onun torck Folio? Yes absolutely, and I think that's been consistent from from the beginning. The helock is is typically a higher end profile. Higher F goes higher net worth and that's by design as well the criteria for the helock or a little tiitghter. So the certainly the L T V has consistently been below the uninsured and those are the L V's based on the authorized. If we were look at it over the outstandings, you know with the utilization rate probably be below 30%.
Speaker 58: Okay I'm going to asme that those are probably older vintages with F? Er amortization, So maybe benefited from greater home price appreciation. As well as that there.
Speaker 59: Yes that's part of it but also just the need that the helock shaves for for some clients is is not necessarily immediate need. Sometimes they the high end high income earners and will want the flexibility to their planning for renovation or they have things in mind and they don't want to use. It now conversely also it on the than non adortiisment bees. They can pay it down substantially when when they have higher income than expected coming in and that's been an important factor. I think through the pandemic all all of our rotating credit including the helock bees. We've seen higher prepayments on that as the savings balances of the clients is higher. So.
Speaker 58: Give that makes sense and if I could switch to net interest income when I look at your sensitivity disclosure.
Speaker 58: From 100 basis points increase in interest rates. It looks like you have about 100 and thirty million benefit to net income and that implies a low, low to mid-single digit increase in.
Speaker 58: And that income when I modeled it out- a height.
Speaker 37: Know I get a higher expected increase. So is that lower benefit driven by hedging activity? Have you, you knowin?
Speaker 60: Initiated hedges that limit the asand Al decretion that you could get in high rate environment.
Speaker 61: Maybe I'll start off- I don't have the table in front of me, nigel- But I believe that there was and increase- small increase- in sensitivity quarter over quarter and part of part of that is from growth in good retail core operating account. So the growth in deposit certainly has an impact on that. Yes there's, as we've talked about in the past, there's always activity and treasury to try to risk, manage and and stabilize and protect NI through the cycle. But does that answer your question nudgel, or should we take some?
Speaker 58: No it does partially. I mean, when I look at your- you know- maturity profile, you have a lot of loans mature in the next 12 months and we WA out maturity low, So I would to just expect it a greater benefit. But UH, I'm mean, I'll assume that's really on hedging, I doesn't only. There's anything else that's driving it.
Speaker 43: Yeah nothing else to call a.
Speaker 58: Good that's it for me, thanks.
Speaker 44: Thank you once again. Please press that one or you'll be bykeepip ad if you have a question.
Speaker 5: Next question: Ju Ho CAM credit thr. Please go ahome.
Speaker 62: Good afternoon. A couple of quick questions. First on capital, wondering how view buybacks as an option to deploy capital from here. Can we see the bank continue to buy back shares? Just wondering in the context of the elevated level uncertainty and perhaps being more prudent on the capital frontthank.
Speaker 32: Thank you for your question. It's the buybacks are always part of our, our yearly capital management, but there Re really a complement. Our number one focus is is always organic growthand investing in our businesses. We see, we see still a lot of arewe accretive opportunity for the bank. So that's where we that the mindset of the team is and the mindset of the bank. So providing also our shareholders with a sustainable dividend growth is also part of our strategy. So buybacks are really a complement and, in terms of our capital level, with the current market uncertainty and the the macro economic uncertainty, we like the level of capital that we have at this point in time.
Speaker 63: Okay thanks for that. And just lastly quip and hea: another quarter. A very strong growth there. Wondering if you could give a bit more color on what drove at the loans that posit ATE this quarter and just stands out and wondering how sustainable that level of growth is going forward.
Speaker 64: Yes Thank you for the question, like here. So essentially, a couple of things. The Board, first of all, the borders are completely reopened, So there is an economic recovery right now. The inflation is also on control. You have to keep in mind also that this is a dellarized economy, So this is why think it helps to control inflation and maintain purchasing, car the poulation is still very young. So, and the fundamentals, if the banking sector, are still here, bank penetration rates are still very low, So we think that. So all this contributed to the good results in Q2 and they will continue to contribute for the rest of 20 20, two and 20 twenty-three.
Speaker 2: Great that's pret color. Thank you.
Speaker 44: Thank you. There are no further questions ister at this time. I would now like to turn a meeting over to MR ferrera.
Speaker 10: Well Thank you very much and we'll speak to you next quarter.
Speaker 44: Thank you. The conference has now ended. Please disconnect your lines at this time time. Thank you for your participation.