NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed the long-term Issuer Default Rating (IDR) and the short-term IDR of Bank of Nova Scotia (BNS) at 'AA-/F1+'. The Rating Outlook remains Stable. A complete list of ratings is provided at the end of this release.
The ratings reflect the bank's sound overall financial fundamentals and diverse franchise. BNS's financial results and asset quality have remained consistent and continue to compare well internationally. BNS's ratings also benefit from Canada's strong economic and regulatory environment as well as a stable domestic banking market.
Earnings performance has remained consistent, benefiting from solid contribution from each of the bank's operating segments, Canadian Banking, International Banking, Scotia Capital and Global Wealth Management. Moderate provisioning levels have contributed to BNS's solid results of the past few periods.
The establishment of the Global Wealth Management business line and recent acquisitions in this area, including the purchase of DundeeWealth Inc., supports earnings diversity. Further, geographic diversification is a significant and positive attribute of the firm's strategy, as it provides an additional source of growth partly uncorrelated to Canada. The bank has remained active internationally, completing several acquisitions in Latin America, Asia and the Caribbean in recent periods.
In the first half of 2011,, BNS's Tier I ratio was solid at 12% but remains at the low end amongst its domestic peers. The relatively lower capitalization is partly offset by the bank's earnings generation power which is enhanced by its international franchise. BNS is presently taking steps to comply with expected changes in regulatory capital under Basel III.
The financial environment remains challenging, yet BNS is expected to manage through these more difficult times comparatively well. The Rating Outlook is Stable, given expectations for solid financial performance and the maintenance of a sound risk profile.
Steady growth in retail loans has resulted in record levels of household indebtedness, leaving Canadian households much more exposed to an adverse shock than in prior periods. Fitch believes that increased household leverage in Canada bears close monitoring. That said, these concerns are buffered by structural factors that could help mitigate the risk associated with Canadian household debt levels. Still, should delinquencies in the domestic retail loan book increase beyond expectations, the ratings could come under pressure.
Looking ahead, execution risk associated with the bank's recent acquisitions could be a source of uncertainty. However, Fitch notes that BNS is an experienced acquirer with a successful track record in integrating acquisitions.
Positive rating momentum is difficult to envision at the present time considering BNS's current high ratings.
BNS is the third largest Canadian bank. The bank offers a full array of banking and wealth management products in the domestic market. Global capital market operations and corporate banking are provided by Scotia Capital. BNS is the most internationally diverse of Canada's banks with substantial Caribbean and Latin American operations and an increased Asian presence.
Fitch has affirmed the following ratings with a Stable Outlook:
The Bank of Nova Scotia
--IDR at 'AA-';
--Short-term IDR at 'F1+';
--Long-term deposits at 'AA-';
--Senior debt at 'AA-';
--Subordinated debt at 'A+';
--Short-term debt at 'F1+';
--Individual at 'B';
--Viability Rating at 'aa-';
--Support at '1';
--Support Floor at 'A-'.
Scotiabank Capital Trust
--Trust Securities at 'A'.
Additional information is available at www.fitchratings.com
Applicable Criteria and Related Research:
--'Global Financial Institutions Rating Criteria' (Aug. 16, 2010);
--'Equity Credit for Hybrids and Other Capital Securities' (Dec. 29, 2009);
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Additional information is available at www.fitchratings.com
Applicable Criteria and Related Research:
--'Global Financial Institutions Rating Criteria' (Aug. 16, 2010);
--'Equity Credit for Hybrids and Other Capital Securities' (Dec. 29, 2009);
--'Short-Term Ratings for Corporate Finance' (Nov. 2, 2010).
Applicable Criteria and Related Research:
Short-Term Ratings Criteria for Corporate Finance
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=568726
Equity Credit for Hybrids and Other Capital Securities: Market Feedback and Fitch's Responses
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=291784
Global Financial Institutions Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=547685
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