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Highlights

  • Stock Drops Despite Earnings Beat: Scotiabank shares are down 10% in 2025, even as Q1 earnings and capital ratios remain positive.

  • Loan Loss Provisions Still Rising: PCL climbed to $1.16 billion in fiscal Q1 2025, signaling ongoing stress among overleveraged borrowers.

  • Financials Provide Stability: Adjusted net income hit $2.36 billion with a healthy 12.9% CET1 ratio, showcasing operational resilience.

The Bank of Nova Scotia (TSX:BNS), Canada’s third-largest lender by assets, is experiencing a turbulent 2025 as its stock continues to face pressure despite delivering fiscal Q1 results. Shares of the bank are down approximately 10% year-to-date, currently trading near $69—well below the $80 level seen in late November and a far cry from the $93 high reached during the post-pandemic recovery.

The stock’s extended decline, which began in 2022, is largely linked to central banks' aggressive monetary tightening aimed at reining in inflation. The Bank of Canada and the U.S. Federal Reserve significantly raised interest rates to slow overheated economic activity, a move that triggered rising provisions for credit losses (PCL) across the banking sector. 

As inflation showed signs of easing, both the Bank of Canada and the U.S. Federal Reserve paused their rate-hiking campaigns in the fourth quarter of 2023. The shift in policy sparked optimism in financial markets, propelling bank stocks upward as investors anticipated a wave of rate cuts in 2024. Lower interest rates ease the financial burden on both consumers and businesses, leading to improved credit performance and expectations of reduced PCLs.

However, the Bank of Nova Scotia's latest financials suggest a more nuanced picture. In fiscal Q1 2025, the bank’s PCL increased to $1.16 billion—up from $1.03 billion in fiscal Q4 2024 and $962 million in Q1 of the prior year. The rise points to persistent challenges among borrowers, particularly those heavily leveraged, despite a more accommodative interest rate environment.

Nonetheless, the bank demonstrated resilience in its operational performance. Adjusted net income for the quarter rose to $2.36 billion, up from $2.12 billion in the same period last year. Adjusted earnings per share improved to $1.76 from $1.69. Return on equity remained steady at 11.8%, indicating consistent profitability. Moreover, the bank’s common equity tier-one (CET1) ratio stood at a robust 12.9%.