Scotiabank has initiated coverage of National Bank of Canada (NTIOF, Financial), assigning it an Outperform rating and setting a price target of C$135. This move is part of a broader analysis involving six Canadian banks. Despite ongoing uncertainties in the macroeconomic environment and concerns about a potential trade war, the analyst maintains a positive stance towards Canadian banks. The belief is that these financial institutions are well-prepared for recessionary conditions, more so than ever before.
NTIOF Key Business Developments
Release Date: February 26, 2025
- Earnings Per Share (EPS): $2.93 for Q1 2025, up 13% year over year.
- Return on Equity (ROE): 17.6% for Q1 2025.
- CET1 Ratio: 13.6% at the end of Q1 2025.
- Dividend Payout Ratio: 40.6% in Q1 2025.
- P&C Banking Net Income: $290 million in Q1 2025.
- Personal Mortgages Growth: 3% year over year.
- Commercial Loans Growth: 13% year over year.
- Wealth Management Net Earnings Growth: 23% year over year in Q1 2025.
- Financial Markets Net Income Growth: 35% year over year in Q1 2025.
- Credigy Net Income Growth: 8% year over year.
- ABA Bank Loan Book Growth: 9% year over year in Q1 2025.
- ABA Bank Client Base Growth: 31% year over year in Q1 2025.
- ABA Bank Deposit Growth: 19% year over year in Q1 2025.
- Revenue Growth: 19% year over year in Q1 2025.
- Pre-Tax Pre-Provision (PTPP) Growth: 28% year over year.
- Efficiency Ratio: 50% in Q1 2025.
- Expenses Growth: 12% year over year.
- Effective Tax Rate: 22.6% in Q1 2025.
- Non-Trading Net Interest Income (NII) Growth: 3% sequentially.
- Loans Growth: 7% year over year, 1% quarter over quarter.
- Deposits Growth (excluding wholesale funding): 12% year over year, 4% quarter over quarter.
- Total Provisions for Credit Losses (PCLs): $254 million, 41 basis points.
- Gross Impaired Loan Ratio: 79 basis points, up 11 basis points sequentially.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- National Bank of Canada (NTIOF, Financial) reported a strong earnings per share of $2.93 for Q1 2025, marking a 13% increase year-over-year.
- The bank achieved a return on equity of 17.6%, reflecting strong execution across business segments.
- The acquisition of Canadian Western Bank (CWB) is expected to enhance National Bank's domestic growth and expand its banking capabilities.
- Wealth Management segment saw a 23% increase in net earnings year-over-year, driven by market appreciation and strong net entries.
- Financial Markets exceeded expectations with a 35% year-over-year net income growth, benefiting from strong issuance volumes and securities finance opportunities.
Negative Points
- Canada's economic performance is lagging behind the US and other G7 nations, with declining productivity and GDP per capita.
- The threat of US tariffs creates increased uncertainty, potentially impacting economic growth and prolonging the credit cycle.
- Total provisions for credit losses (PCLs) increased to $254 million, reflecting heightened uncertainty and potential tariff impacts.
- The bank's effective tax rate increased due to the application of Pillar 2 rules, impacting financial results.
- ABA Bank continues to face challenges with lower tourism spend impacting customer activity, despite a 9% loan book growth year-over-year.
