DBRS Confirms Bank of Nova Scotia Ratings at AA and R-1 (high), Trends Stable

DBRS has today confirmed the ratings of Bank of Nova Scotia (Scotiabank, BNS or the Bank) and its related entities, including Scotiabank’s Deposits & Senior Debt at AA and Short-Term Instruments at R-1 (high). All trends are Stable. Scotiabank’s ratings remain supported by its diversified earnings profile, culture of controlling costs and prudent management of credit risk.

Scotiabank continues to expand its footprint, both geographically and within business lines, by leveraging organic growth opportunities while still favouring an acquisition-oriented strategy. The Bank has made over 30 acquisitions since 2007, including sizable acquisitions, most notably the acquisition of ING Bank of Canada (ING) in August 2012 and the addition of a 51% stake in Colombian-based Banco Colpatria in January 2012. As a result of the aforementioned acquisitions, as well as organic growth, Scotiabank has grown in size at a more rapid pace than its Canadian banking peers. While offering greater growth opportunities and potentially higher returns, Scotiabank’s investments in the Caribbean, Central America, South America and Asia have inherently higher risk profiles relative to developed markets, resulting in additional political, economic, currency and operational risks.

The asset quality profile of the Bank remains good with particular strength in the Canadian market, although provisions in Latin America increased, in line with portfolio growth and a shift in portfolio mix. In May 2013, Scotiabank announced an upcoming leadership change: Rick Waugh will retire as CEO on November 1, 2013, and Brian Porter, the Bank’s current president, will assume the CEO role. Mr. Porter has extensive experience with the Bank and has held a number of high-level roles across several of its operating units; a smooth transition is expected, with no shift in strategic direction anticipated as a result of the change.

DBRS does not expect potential house price depreciation in Canada to result in material losses from the Bank’s real estate secured lending portfolio, notwithstanding the high indebtedness of the average Canadian consumer and significant increases in housing prices in certain sectors of the Canadian real estate market.

Scotiabank’s long-term deposits and senior debt rating, at AA, is composed of its intrinsic assessment of AA (low) and its support assessment of SA2 (reflecting the expectation of systemic and timely external support by the Government of Canada). The SA2 ranking results in a one-notch benefit to the senior debt and deposits and subordinated debt ratings.

Notes:
All figures are in Canadian dollars unless otherwise noted.

The applicable methodologies are Global Methodology for Rating Banks and Banking Organisations (June 2012), DBRS Criteria: Rating Bank Subordinated Debt and Hybrid Instruments with Discretionary Payments (April 2010), DBRS Criteria: Rating Bank Preferred Shares and Equivalent Hybrids (June 2009) and DBRS Criteria: Intrinsic and Support Assessments (February 2009), which can be found on the DBRS website.

Scotia Mortgage Corporation, Montreal Trust Company of Canada and National Trust Company are unconditionally guaranteed by Bank of Nova Scotia.

The rating of Maple Trust Company is exclusively in regard to the obligations of Maple Trust Company under one specific securitization transaction. The rating has been provided in order to satisfy rating requirements contained in the securitization documentation; the rating should only be used for this purpose. The rating is based on a performance guarantee dated May 30, 2008, between Maple Trust Company and Bank of Nova Scotia, its parent.

The sources of information used for this rating include information provided by the Bank of Nova Scotia, Investment Funds Institute of Canada, Bank for International Settlements, and Office of the Superintendent of Financial Institutions Canada. DBRS considers the information available to it for the purposes of providing this rating was of satisfactory quality.

For additional information on this rating, please see Banks and Banking Organisations Linking Document by clicking the link under Related Research at the right of the screen or by contacting us at info@dbrs.com.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.

Lead Analyst: Brenda Lum
Rating Committee Chair: Kent Wideman
Initial Rating Date: March 31, 1979
Most Recent Rating Update: September 18, 2012