Bank of Nova Scotia, also known as Scotiabank, has reported lower-than-expected profits for the fiscal fourth quarter. The Canadian lender accrued more reserves than anticipated to cover potential loan losses, resulting in provisions for credit losses totaling C$1.26 billion ($925 million), surpassing analysts' forecast of C$870 million. The bank's adjusted earnings per share stood at C$1.26, falling short of the average estimate of C$1.67 from a Bloomberg survey.

The increased credit provisions primarily stemmed from higher loan loss provisions in both the Canadian and Latin American operations of Scotiabank. It appears that economic turmoil in these regions contributed to the bank's challenges in managing potential risks. Furthermore, the institution reported diminished capital markets earnings, indicating reduced trading activity during the quarter.

During a conference call with analysts, Scotiabank's Chief Executive Officer, Scott Thomson, acknowledged the financial difficulties faced in 2023 but emphasized the decisive actions taken by the bank. He expressed confidence that earnings would improve in 2024 due to productivity initiatives and a more stable rate environment.

Following the announcement, Scotiabank's shares dropped by 3.5% to C$58.13 in Toronto trading. Year-to-date, the bank's shares have declined by 12%, compared to the 8% decline in the S&P/TSX Commercial Banks Index.

These financial results precede the upcoming unveiling of Scotiabank's revamped strategy by CEO Scott Thomson, who assumed leadership positions in February. Thomson has promised to prioritize profitable growth and deliver shareholder returns. However, he faces challenges such as high expenses, slower loan growth in Canada, and declining results in the bank's international operations. The return of credit losses to levels seen before the pandemic has affected Scotiabank's lending portfolios in Chile and Peru.

In an effort to shape the bank's future, Thomson has already made strategic changes, appointing new leaders for the Canadian and international divisions as well as in the wealth-management business. Additionally, Scotiabank announced staff reductions amounting to 3% and wrote down the value of its investment in China's Bank of Xi'an Co during October. These actions, along with costs related to early contract terminations, resulted in after-tax charges totaling C$594 million. However, the bank recorded a gain of C$319 million from the sale of a stake in Canadian Tire Corp.'s financial-services business.

Reacting to the fourth-quarter results, RBC Capital Markets analyst Darko Mihelic described them as "noisy." Mihelic highlighted that the decision to increase provisions for credit losses should be seen positively, as it strengthens Scotiabank's balance sheet for the upcoming year.

Scotiabank is the first among Canada's largest banks to report financial results for the October quarter. The remaining large banks in the country are expected to release their results for the final fiscal quarter of the year throughout the week.