Shares of Scotiabank, Canada's third-largest bank, slipped 1.5 percent in mid-morning trading.
Gross impaired loans to the oil and gas sector more than doubled in the third quarter to C$96 million from the same period last year. They were C$92 million in the second quarter.
The lender’s oil and gas portfolio forms almost 10 percent of business and commercial loans, more than any of the other major Canadian banks.
All of the five biggest Canadian lenders have reported increases in energy-sector bad loans in the third quarter, marking a clear trend that confirms investor worries about the impact the oil price weakness was having on the lenders.
"It seems to me that it's going to be a tough year ahead for Bank of Nova Scotia. They have an outsized exposure to the oil and gas industry," Edward Jones analyst James Shanahan said.
Like its peers, Scotiabank has been conducting stress tests under various scenarios to gauge the impact of plunging oil prices on its loan book.
"The stress tests indicate that any potential losses are very manageable and within our risk expectation," Chief Risk Officer Stephen Hart said on a conference call with analysts.
Net income in the quarter ended July 31 was C$1.85 billion, or C$1.45 per share, compared with C$2.35 billion, or C$1.85 per share, a year ago. Core earnings were C$1.47 per share.
Analysts on average had expected earnings of C$1.45 per share, according to Thomson Reuters I/B/E/S.
Earnings for the international banking business climbed 11 percent, helped by loan growth across Latin America and higher fee income.
The Canadian unit’s profit fell due in part to a gain recorded in the year-earlier period. Excluding special items, the segment grew 15 percent.
But the lender’s global banking and markets division recorded a 20 percent drop in profit, reflecting weakness in investment banking and higher provisions for credit losses.
Scotiabank also increased its quarterly dividend.
(Reporting by John Tilak; Editing by Chizu Nomiyama and James Dalgleish)
By John Tilak
