DBRS Morningstar Finalizes Its Provisional Rating on Scotiabank's NVCC Additional Tier 1 (AT1) Limited Recourse Capital Notes at BBB (high), Stable Trend

DBRS Limited (DBRS Morningstar) finalized its provisional rating of BBB (high) with a Stable trend on The Bank of Nova Scotia’s (Scotiabank or the Bank) NVCC Additional Tier 1 (AT1) Limited Recourse Capital Notes.

Following the review of documentation associated with the recent offering, DBRS Morningstar confirmed that the terms of the issuance are consistent with those reviewed at the time the provisional rating was assigned on June 7, 2021. For further details on the provisional rating, please see the DBRS Morningstar press release entitled “DBRS Morningstar Assigns a Provisional Rating of BBB (high), Stable, to Scotiabank’s NVCC Additional Tier 1 (AT1) Limited Recourse Capital Notes.”

On June 15, 2021, the Bank issued $1.25 billion of Limited Recourse Capital Notes that mature on July 27, 2081, and will have an initial five-year fixed rate of 3.70%. DBRS Morningstar notes that the Office of the Superintendent of Financial Institutions granted Tier 1 capital treatment to the Limited Recourse Capital Notes.

RATING DRIVERS
DBRS Morningstar views Scotiabank as being well placed in its current rating category. Over the longer term, the Bank’s ratings would be upgraded if Scotiabank continues to build the depth and scale of its franchise, resulting in a sustained improvement in financial performance, without substantially increasing its risk appetite. Conversely, the ratings would be downgraded if there were a sustained deterioration in earnings or asset quality, especially from deficiencies in risk management. Additionally, significant operational issues, particularly in the Pacific Alliance region where Scotiabank has made numerous acquisitions, would lead to a downgrade of the ratings.

ESG CONSIDERATIONS
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.

The Grid Summary Grades for Scotiabank are as follows: Franchise Strength – Very Strong/Strong; Earnings Power – Very Strong/Strong; Risk Profile – Strong; Funding & Liquidity – Strong; Capitalization – Very Strong/Strong.

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

The principal methodology is the Global Methodology for Rating Banks and Banking Organisations (June 8, 2020, https://www.dbrsmorningstar.com/research/362170). Other applicable methodologies include the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (February 3, 2021, https://www.dbrsmorningstar.com/research/373262).

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found on the issuer page at www.dbrsmorningstar.com.

The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

This rating is endorsed by DBRS Ratings Limited for use in the United Kingdom, and by DBRS Ratings GmbH for use in the European Union, respectively. The following additional regulatory disclosures apply to endorsed ratings:

Each of the principal methodologies employed in the analysis addressed one or more particular risks or aspects of the rating and were factored into the rating decision. Specifically, the “Global Methodology for Rating Banks and Banking Organisations” (June 8, 2020) was used to evaluate the Bank, and “DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings” (February 3, 2021) was used to assess ESG factors.

This rating concerns a newly issued financial instrument. This is the first DBRS Morningstar rating on this financial instrument.

The last rating action on this issuer took place on June 7, 2021, when DBRS Morningstar assigned a provisional rating to the NVCC Additional Tier 1 (AT1) Limited Recourse Capital Notes.

Generally, the conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. DBRS Morningstar’s outlooks and ratings are monitored.

For further information on DBRS Morningstar historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml. DBRS Morningstar understands further information on DBRS Morningstar historical default rates may be published by the Financial Conduct Authority (FCA) on its webpage: https://www.fca.org.uk/firms/credit-rating-agencies.

Lead Analyst: Maria-Gabriella Khoury, Senior Vice President
Rating Committee Chair: Michael Driscoll, Managing Director
Initial Rating Date: December 31, 1980

For more information on this credit or on this industry, visit www.dbrsmorningstar.com.

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