BMO, Scotiabank miss profit estimates as bad loan provisions, costs rise

Bank of Montreal (BMO.TO) and Bank of Nova Scotia (BNS.TO), Canada’s third and fourth largest banks, missed analysts’ estimates for quarterly profit on Tuesday as they set aside more funds to cover for bad loans.

The results come as the Bank of Canada’s 10 interest rate hikes since last year have slowed the housing market, increased consumer debt and delayed mortgage repayments, forcing banks to set aside more money to protect against potential loan losses and restraining their earnings growth.

BMO, which bought U.S. regional lender Bank of the West earlier this year, said provision for credit losses rose to C$492 million ($361.42 million), compared with C$136 million a year ago.

The bank’s earnings were also affected by severance costs of C$162 million and C$83 million in legal provisions at its capital markets unit. Chief Financial Officer Tayfun Tuzun said the costs were a one-quarter phenomenon, but would drive expense savings of C$200 million next fiscal year.

BMO’s shares, which have lose about 7% so far this year, were down more than 2% in early trading in Toronto.

At Scotiabank, provision for credit losses jumped to C$819 million from C$412 million.

“We are closely monitoring customer behavior and have observed a very rational and responsible shift in spending as households manage through this period of reduced discretionary income,” Scotiabank CEO Scott Thomson told analysts.

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