Bank of Nova Scotia (BNS.US) reported higher-than-expected profits in Q2, with strong performance in its Canadian domestic business.

BNS.US, the Bank of Nova Scotia, is the first of Canada's six major banks to report financial results for the second quarter of fiscal year 2026, ending on April 30. The bank announced on May 27 that its total revenue for the quarter was 9.837 billion Canadian dollars, higher than analysts' forecast of 9.73 billion Canadian dollars. Adjusted net profit was 2.652 billion Canadian dollars, a 27.99% increase from the same period last year. Adjusted earnings per share were 2.02 Canadian dollars, a 32.89% increase from the same period last year and higher than analysts' average expectation of 1.94 Canadian dollars. The bank's Canadian division performed better than expected, exceeding market estimates. The bank is focusing on improving the profitability of this core sector. The net profit of the domestic banking business totaled 935 million Canadian dollars, higher than the average forecast of 914 million Canadian dollars from two analysts surveyed by an institution, and significantly higher than the 613 million Canadian dollars from the same period last year. The net profit of the international business division totaled 736 million Canadian dollars, exceeding market estimates of 679 million Canadian dollars, with a 3.1% increase year-on-year. The bank's CEO, Scott Thompson, stated in the announcement that the performance benefited from "strong revenue growth, margin expansion, and another quarter of positive operating leverage." He also stated that the Bank of Nova Scotia is still expected to achieve a ROE target of 14% or more in fiscal year 2027. In terms of credit, the bank set aside 1.22 billion Canadian dollars for loan loss provisions this quarter, higher than the market's average expectation of 1.1 billion Canadian dollars. Additionally, the bank announced an increase in quarterly dividends on Wednesday, raising dividends by 4 cents per share to 1.14 Canadian dollars. In terms of asset divestment, in the first quarter of 2026, the bank incurred a loss of 434 million US dollars (377 million US dollars after tax) after completing the sale of its banking operations in Colombia, Costa Rica, and Panama. Earlier this year, Thompson referred to the fiscal year 2026 as a "critical year" for the bank's Canadian banking business, stating that profitability is expected to achieve double-digit growth as the bank progresses in reducing costs, attracting more low-cost deposits, and selling multiple products to customers. This is an important part of the Bank of Nova Scotia's overall strategic reform, which also relies on expanding its capital markets business in the US and improving the profitability of its large international business division (particularly in Mexico and Chile, facing economic challenges). While Canadian bank stocks have performed well this year, outperforming the market significantly, Royal Bank of Canada analyst Darko Mihelic pointed out in a report earlier this month that the Bank of Nova Scotia's valuation is at the lowest level among peers. He stated that this reflects the bank's lower ROE than its peers, as well as challenges in expanding its domestic business and the need for significant progress in its international business. He added, "We believe the new plan is feasible, but the execution remains uncertain."