Scotiabank’s second quarter 30 per cent more profitable

TORONTO — Scotiabank reported a 30 per cent surge in profits Tuesday, closing out a quarter that saw Canada’s five biggest banks beat expectations, largely thanks to lower than anticipated credit costs.

But concerns about future loan growth in Canada persist, as high house prices and overstretched borrowers have dampened investor sentiment.

Combined, the five big banks, including Royal, TD, BMO and CIBC — had $9.67 billion in net income during the second quarter, up nearly 20 per cent from $8.12 billion a year ago.

Their combined quarterly revenue was $34.8 billion, up five per cent from $33.11 billion during the second quarter of 2016.

There was no indication in the results that Canadians are having trouble servicing their mortgages, credit card debts or other types of loans, said Barclays analyst John Aiken. But while credit trends look solid, analysts said the growth outlook for the lenders’ key Canadian retail banking operations remains challenged in light of record levels of household debt and overheated house prices in Toronto and in Vancouver.

The second quarter of the year saw “positive, but not spectacular” Canadian loan growth for the banking sector.

The biggest negative coming out of the quarter was retail banking growth south of the border, which was not as strong as everyone had been expecting, Aiken said.

“We did see margin expansion benefiting from rising Fed rates, but loan growth just did not exist. Considering the fact that the U.S. banking operations are expected to grow faster than the Canadian banking operations, this is a bit of a disappointment.”