Good morning, and welcome to Scotiabank's 2021 fourth quarter results presentation. My name is John McCartney, and I'm Head of Investor Relations here at Scotiabank. Presenting to you this morning are Brian Porter, Scotiabank's President and Chief Executive Officer, Raj Viswanathan, our Chief Financial Officer, and Phil Thomas, our Chief Risk Officer. Following our comments, we'll be glad to take your questions. Also present to take questions are the following Scotiabank executives, Dan Rees from Canadian Banking, Glen Gowland from Global Wealth Management, Ignacio Deschamps from International Banking, and Jake Lawrence from Global Banking and Markets. It contains Scotiabank's caution regarding forward-looking statements. With that, I will now turn the call over to Brian.
Thank you, John, and good morning, everyone. I will begin with a review of the bank's performance and progress over the course of fiscal 2021. After which, Raj will review the financial year in more detail, including our outlook for fiscal 2022. Phil Thomas, our Chief Risk Officer, will follow Raj with commentary on risk performance and outlook. We will be pleased to take your questions following my closing remarks. The 2021 fiscal year was indeed the transition year to the full earnings power of the bank we anticipated. In fact, at the end of 2019, pre-tax, pre-provision earnings were 8% higher. Our business lines have returned to or exceeded pre-pandemic earnings levels. Loan growth has been strong, in line with customer preferences.
Our loan growth is focused on secured lending, higher quality unsecured retail lending, and maintaining a high quality corporate and commercial loan book. This will generate consistent revenue growth while keeping PCL ratios well below historic levels. Despite the realities of transition in many of our markets, this speaks to our high asset quality and diversified platform. The pandemic period has been a comprehensive test of both customer behavior and our ability to deliver a superior digital offering across our footprint. J.D. Power recently recognized Scotiabank as number one in Canadian online banking satisfaction. We were also named Best Digital Bank in Mexico at the Global Retail Banking Innovation Awards.
The pace of digital adoption and lack of migration back to traditional channels as the post-pandemic recedes has given us confidence to further accelerate our platform transformation as a top line growth engine, a cost efficiency lever, and a driver of enhanced customer experience. Raj will speak in more detail to this quarter's restructuring charge and related benefits driven by this accelerated adoption of digital channels in International Banking. Credit quality in the bank remains very strong. Gross impaired loans are now below pre-pandemic levels, with formations in the quarter substantially below pre-pandemic levels. Loan growth has accelerated, and we expect PCLs to continue to trend lower. Phil Thomas will have more to say on this shortly.
Our common Tier 1 ratio remains strong at 12.3%, lifting capital restrictions and our confidence in future earnings growth. We have increased our quarterly dividend by CAD 0.10 this quarter, and we will recommence our normal course issuer bid program immediately. As we have indicated prior to the pandemic, we will review our annual dividend in the second quarter. The bank has successfully exceeded our four medium-term financial objectives of EPS growth, ROE target, positive operating leverage, and strong capital ratios. We are proud of our performance. Great progress on our commitments to strengthen the communities in which we operate was also evident through various social and sustainability efforts in sustainability transparency and recognized by Refinitiv as being among the top 25 most diverse and inclusive global companies.
Before I turn the call over to Raj, I wanna take a moment to acknowledge the severe weather related events in British Columbia. Like many Canadians, we've been following the news with real concern, and our thoughts are with our customers, our colleagues, and their families, and we will continue to stand by them over the coming weeks and months. With that, I'll turn the call over to Raj for the financial review.
Thank you, Brian, and good morning, everyone. Before I begin, I'd like to note that all my comments on the bank and business line results are on an adjusted basis. As I did in the past few quarters, I will refer to quarter-over-quarter performance in some sections, given the economic impact of the pandemic during most of 2020. I will also refer to the risks. You will recall last quarter, we added slide 40, which discloses the impact of foreign currency to key income lines. This remains relevant this quarter. Starting on slide 5 on fiscal 2021 performance. The bank ended the year with adjusted diluted earnings per share of CAD 7.87, and a return on equity of 15%.
Pre-tax, pre-provision income was up 2% or up 5% excluding the impact of foreign exchange. Revenue was flat or up 3% excluding the impact of foreign exchange, resulting in a positive operating leverage for the year. From a business line perspective, earnings from our P&C businesses, which were impacted by higher provisions for credit losses last year, recovered significantly in 2021. Canadian Banking earnings increased 60% and International Banking earnings increased 83% on a full year basis compared to 2020. Global Banking and Markets maintained momentum in fiscal 2021, reporting earnings of CAD 2.1 billion, driven by good contributions from capital markets and corporate and investment banking. Global Wealth Management earnings of CAD 1.6 billion was up 23% year-over-year, driven by record results across both advisory and asset management businesses.
In 2022, all Bank revenue is expected to benefit from good mid-single-digit loan growth, modest margin expansion, and higher non-interest income benefiting from improving economic conditions. The provision for credit losses ratio is expected to be below fiscal 2021 levels. The Bank is focused on prudent management of expense growth to generate positive operating leverage. I'll review the performance for the quarter starting on slide 6. Let me address a couple of key expense items that add up to CAD 188 million this quarter that was recorded in the other segment and disclosed in slides 20 and 21.
These items impacted the reported net income to common shareholders by CAD 126 million. The bank recorded a restructuring charge of CAD 126 million, primarily related to the cost of reducing approximately 10% of the branches and approximately 7% of full-time employees, mainly in the middle and back offices, driven by the accelerated customer adoption of digital channels and process automation within International Banking. These efficiencies are as a result of our commitment to simplify processes and optimize distribution channels to run businesses more effectively while meeting changing customer needs. We expect the charge will result in annual savings of a similar amount in 2022 in International Banking. In addition, the bank recorded a settlement and litigation provision of CAD 62 million pre-tax in connection with the bank's former metals business. All my comments that follow will exclude the impact of these two items.
Earnings of CAD 2.7 billion and diluted earnings per share of CAD 2.10, an increase in EPS of 45% year-over-year and 4% quarter-over-quarter. All operating segments reported strong results again this quarter, reinforcing the strength of our diversified platform. Return on equity improved to 15.6% this quarter, while pre-tax pre-provision earnings increased 4% year-over-year. Revenues were up 2% year-over-year or up 4%, excluding the impact of foreign currency translation. Revenue was down a modest 1% compared to last quarter, mainly due to lower trading related revenues. Net interest income was down 1% or up 2%, banking and Global Wealth Management businesses, as well as higher margins achieved in GBM, offset by slightly lower margins in International Banking.
The all-bank net interest margin declined 6 basis points quarter-over-quarter to 2.17%, driven by business mix changes in Canadian Banking and International Banking and lower contributions from asset liability management activities. Non-interest income increased 7%, driven by higher banking fees, wealth management revenues, income from associated corporations and investment gains. Quarter-over-quarter non-interest income was down 2%, due mainly to lower trading revenues and underwriting and advisory fees. The PCL ratio continued to decrease, falling to 10 basis points for the quarter, representing a decline of 63 basis points year-over-year and 14 basis points quarter-over-quarter. The improvement reflects changes in business mix and a more favorable credit and macroeconomic outlook across the footprint. Year-over-year adjusted expenses increased a modest 1%, driven by holiday-related costs to support business growth.
These were partly offset by the impact of foreign currency translation, lower personnel and premises costs. On an adjusted basis, the productivity ratio was 52.8% this quarter compared to 53.3% a year ago, while operating leverage was a + 1.5% for the fiscal year. The bank reported a strong common Tier 1 ratio of 12.3%, up 10 basis points compared to the prior quarter and 50 basis points from one year ago. The bank's capital ratio benefited from strong earnings that supported high organic risk-weighted asset growth of approximately CAD 7 billion across all the businesses. In 2022, the bank will continue to maintain strong capital ratios while deploying capital to grow organic risk-weighted assets across all the business lines, buying back stock, and keeping dividend within our target payout range of 40%-50%.
Turning now to the business line results beginning on slide 8. Canadian Banking, 15% quarter-over-quarter. Pre-tax, pre-provision earnings grew 14% year-over-year and 3% quarter-over-quarter to CAD 1.6 billion. Increase was underpinned by strong revenue growth, offset by modest margin compression. Revenue increased 10% year-over-year as net interest income and non-interest income grew by 7% and 22% respectively. Net interest income grew 3% quarter-over-quarter, driven by a strong 5% growth in mortgages, 2% growth in business loans, and higher deposit margins. Net interest margin declined modestly by 3 basis points quarter-over-quarter, driven by the shift in the loan portfolio mix towards mortgages, which grew 13%, and business lending, which increased 11% year-over-year, in line with the strategic priorities of the business.
It is notable that credit card balances grew 4% quarter-over-quarter. Non-interest income declined 2% quarter-over-quarter. Expenses increased 6% year-over-year, largely due to technology and business development costs to support growth. Non-interest expenses declined 1% quarter-over-quarter, driven by lower personal costs, partly offset by higher advertising and business development costs. The whole year operating leverage was strong at 2.9%. The PCL ratio decreased to -10 basis points, driven by an improving credit and macroeconomic outlook. In 2022, Canadian Banking's earnings growth is expected to be driven by strong loan growth, higher fee income, supported by improving economic conditions and a rising rate environment. Turning now to Global 18% year-over-year.
The performance has been underpinned by strong net sales momentum and market appreciation across business lines and record earnings in Canadian Asset Management. Revenue grew a strong 16% underpinned by higher mutual fund fees, brokerage revenues, and private banking loan growth, while non-interest expenses grew 14%. Global Wealth Management delivered its eighth consecutive quarter of positive operating leverage. The operating leverage for the year was a positive 3.1% with broad-based growth across all business lines. We have now had 11 consecutive quarters of double-digit year-over-year earnings growth in Wealth Canada. International Wealth also grew a strong 24% year-over-year on a constant dollar basis.
Assets under management and assets under administration both increased 19% to CAD 346 billion and CAD 597 billion respectively. Earnings are expected to grow through strong asset management and private banking volume growth, along with continued momentum across advisory businesses. Moving to slide 10, Global Banking and Markets. Global Banking and Markets generated earnings of CAD 502 million this quarter, up 9% year-over-year, its fourth consecutive quarter of earnings in excess of CAD 500 million, despite lower capital markets revenues, while net interest income increased 1%. Loans grew 2% quarter-over-quarter and deposits were up a strong 3%. Expenses in the quarter were down 5% and the productivity ratio remains strong at 50.3% for Q4.
GBM LatAm, which is reported as part of International Banking, generated earnings of CAD 180 million this quarter, in line with the prior quarter. On a full year basis, GBM LatAm earnings increased 11%. Global Banking and Markets expects to continue to deliver earnings growth in 2022, driven by capital markets revenue and loan volume growth and disciplined expense management. Turning to the next slide on International Banking, my comments that follow are on an adjusted and constant dollar basis. International Banking reported net earnings are now well above the target we had set for the end of fiscal 2021. The pace of economic recovery and improvement in business conditions continued to accelerate through the quarter.
Quarter-over-quarter, our loan book growth accelerated to pre-COVID levels, with commercial up 4% and mortgages up 3%, while unsecured retail loan balances remained flat after six quarters of decline. Pre-tax pre-provision earnings for the business line increased 1% from the prior quarter. We are seeing a positive trend in net interest income, up 1% quarter-over-quarter and 2% in Pacific Alliance countries, despite a modest net interest margin compression. Revenue declined by 1% quarter-over-quarter as these positive trends in net interest income was more than offset by a CAD 35 million decline in capital markets revenue that was elevated last quarter. The provisions for credit losses ratio declined quarter-over-quarter by 9 basis points to 91 basis points.
Non-interest expenses declined 6% year-over-year or 3% quarter-over-quarter, driven by lower salaries and employment benefits, technology costs and other expenses. The tax rate was low this quarter at 19%, compared with 22% in the prior quarter, driven by benefits from high inflation in 2022. International Banking revenue growth will be driven by good loan growth and expanding net interest margin, benefiting from interest rate increases and improvement in fee revenues. Combined with prudent expense management, including the benefits from the digital investments and the restructuring charge, the business is expected to generate positive operating leverage in 2022. With provision for loan losses expected to remain low, the business is expected to generate good earnings growth in 2022.
Now turning to the other segment, we reported an adjusted net loss of CAD 35 million, down CAD 43 million from last year due to higher corporate expenses. Looking forward to 2020 and 2021. With that, I'll now turn the call over to Phil to discuss the rest of today.
Thanks, Raj, and good morning, everyone. Before I get into the details of the quarter, I'd like to highlight the key themes from a credit perspective. Credit performance is expected to remain strong as portfolio performance and economic drivers continue to improve, reflected in early-stage delinquency rates being well below pre-pandemic levels. Under this backdrop, we expect a PCL ratio of 25 basis points range for fiscal 2022. For International Banking, we expect a PCL ratio of approximately 95 basis points, well below pre-pandemic levels of approximately 140 basis points. Our asset quality in banking, secured lending in our retail portfolio remains higher than pre-pandemic levels at 95% in Canada and 71% in International Banking, driven by higher mortgage volumes. Credit card spending and unsecured loan balances have started to grow in both Canadian Banking and International Banking.
We have seen strong corporate and commercial demand across our footprint, and most of our portfolios continue to be investment grade. Together, these factors have contributed and will continue to maintain the bank's high asset quality and low PCL. As mentioned, the overall credit quality of our portfolios continues to trend higher due to business mix changes driven by strong growth. We see on the slide our GIL and net write-off ratios continue to decline. The GIL ratio improved 6 basis points to 67 basis points. Net write-off ratio improved to 34 basis points in Q4, down 54 basis points pre-COVID, driven by lower retail write-offs in both Canadian and international banking. The bank is also expecting write-offs to remain lower than pre-pandemic levels through fiscal 2022.
We ended the year with allowances for credit losses of CAD 5.7 billion, which is higher than pre-pandemic levels of CAD 5.1 billion. The ACL ratio is now 86 basis points compared to 62 basis points prior to the pandemic. The ACL ratio will continue to trend lower through fiscal 2022 due to our expectation of lower write-offs compared to historical trends. In particular, the quality of our retail portfolios remains strong and the macroeconomic outlook in Canada and in international continues to be favorable. In addition, we would note that allowances for credit losses for the international banking retail portfolio are more than sufficient. During the quarter, performing ACLs declined to CAD 340 million, excluding the impact of foreign currency. Of this, approximately CAD 320 million was released this quarter due to improving ACLs.
Impaired ACLs declined CAD 104 million from last quarter, primarily due to lower delinquency trends and lower impairments across all markets in our retail portfolios. Let me now turn to slide 16 and PCLs. Our total PCLs declined CAD 168 million, and the total PCL ratio was 10 basis points, down 14 basis points from the prior quarter, from last quarter. The decrease was driven by international retail, mainly in the credit card portfolio. Impaired PCLs for Canadian retail banking declined sequentially as well, mainly in the auto portfolio. Turning to performing PCLs, we had a net reversal of CAD 343 million in Q4. As I previously mentioned, and a better macroeconomic outlook. This reflects better credit quality and the benefits from an improved macroeconomic outlook. I would now like to provide some comments on fiscal 2022 and 2023 outlook.
We expect strong credit performance to continue with improved credit metrics driven by higher credit quality of originations as well as a favorable macroeconomic environment. We are mindful of reports of a new variant of concern termed Omicron, but remain comfortable with our allowances, which provide for pessimistic COVID-19 scenarios, including both a sharp rise in cases and a longer duration. We expect the ACL ratio to trend lower than pre-pandemic levels, reflecting a higher credit quality portfolio. The all bank total PCL ratio will remain low through fiscal 2022 in the 25 basis point range, with impaired PCLs expected to be in line with Q4 2021. Specifically, in international banking, the total PCL ratio is expected to be approximately 95 basis points for fiscal 2022.
As recoveries continue to moderate next year, we believe 2023 will reflect more normalized PCL levels, again, reflecting the improved credit quality and business mix shifts as we emerge stronger from the pandemic. I will now turn the call over to Brian for closing remarks.
Thank you, Phil. We had a strong finish into the year, and are confident in our ability to deliver for all our stakeholders in 2022. As outlined by Phil, our credit portfolio profile has significantly improved compared to pre-pandemic. It is more secured and combined with the higher credit quality of the new bookings. We expect the 2022 PCL ratio will be approximately 25 basis points, and mid-30 basis points for 2023. We fully expect the strong momentum in our Canadian Banking business to continue, aided by strong loan growth and a higher interest rate environment. The recovery in our International Banking business is evident. This will be further supported by interest rate increases, continued asset growth, as well as a strong economic rebound. Global Wealth is benefiting from both strong investment management capability. The business performance has been strong with significant growth achieved in both AUM and AUA.
GBM is anticipating growth this year, taking full advantage of our unique Americas client franchise. The business is expected to generate earnings growth driven by solid loan growth and capital markets activity, supported by an advisory pipeline that remains strong from solid earnings growth across each of our operating businesses. With that, I'll turn the call over to John for Q&A.
Thank you, Brian. We'll now be pleased to take your questions. Please limit yourself to one question and then rejoin the queue to allow everyone the opportunity to participate in the call. Operator, can we have the first question on the phone, please?
Thank you. The first question is from Ebrahim Poonawala from Bank of America. Please go ahead.
Good morning. I guess, Raj, maybe if we could just touch upon the margin outlook, both in Canada and IB. We saw about 50 basis points of compression. Give us some sense of if the BOC, Bank of Canada, moves in April with a hike, what that means for the Canadian margin. Remind us if there's anything around hedging on the top of the house that could mitigate the benefit from margin expansion and higher rates. Thank you.
Sure, Ebrahim, thanks for your question. I'll start at the whole bank and then I'll work my way through the business lines, if that's helpful to you.
Sure.
All-bank, we completed 17 basis points that we reported this quarter. It's gonna be driven by multiple factors, and I'll now jump into the business lines. The Canadian Banking margin expansion, we have conservative assumptions at this time, although we do believe that rate increases will happen earlier than our assumptions. We should see some modest margin expansion throughout 2022 in that business, which is at 220 basis points now, as you think about it quarter-over-quarter. Now, some of it is impacted by we love it, but accept that, you know, it does impact the margin expansion. The credit card balances, as we noted, you know, 4% up quarter-over-quarter will start helping the margin expansion through 2022, but modestly.
International banking margin is absolutely at the lowest point at this time at 369 basis points. It's going to grow sequentially. Multiple reasons you talked about, many of which we should start seeing from Q1 onwards and through 2022. We believe there are more rate increases coming across the footprint, be it in Chile, Mexico or Peru. Although Chile and Mexico probably have the most impact to the margin from rate increases that happen in that region. If you put all these things together, we believe that there'll be margin expansion. Like I mentioned in my previous calls, we are positioned for rate increases even from a hedging perspective. The hedges will not be a headwind, Ebrahim.
It won't be a tailwind because we've had a lot of benefits in 2021, which will be probably comparable in 2022 from the way, you know, the balance sheet has been hedged. I don't see it as a headwind, but I do believe that the business line margin expansion should be, you know, fall to the bank's margin expansion for 2022.
Just as a follow-up, Raj, if I can. Structurally, the IB margin, it was around 4.5, high 4s back in 2018, 2019. Let's go. Should we think about that margin going back at least into like the 4.5% range over the course of the next 4-6 quarters?
Yeah, I think as we look through 2022, you should definitely see margin expansion, like I said, from the 369 that we reported this quarter. It'll get likely to the 380-390 level, I think, Ebrahim, based on all the assumptions that I detailed earlier. Then we'll see how 2023 the loan mix changes. You know, if there's more unsecured lending growth in the markets over there. Even in Q4, we really grew in line with the market in all segments, whether it's mortgages, commercial or unsecured. 450 is a number that might take a very long time to get to because our business mix has shifted. I'll also tell you something, you know, International Banking margin is very complicated. So many countries, inflation is a big factor, lots of rate changes.
We have cap rates across the entire, you know, footprint over there. It's a little hard to predict margin, but what I can tell you is you'll see sequential margin expansion through 2022 and into 2023 as well.
That helps. Thank you.
Thank you. The next question is from Gabriel Dechaine from National Bank Financial. Please go ahead.
Good morning. A couple questions. One on this restructuring charge in International. I know you're, you know, I mean, I get the rationale, it makes a lot of sense, but how you handle any political sensitivity that there might be around these types of charges, especially the climate down there. If that's a consideration, and if so, then what do you do about it?
Good morning, Gabriel. This is Ignacio. Well, really, this is a trend of optimizing our distribution for the past few years, and we have been reducing our branches in line with the market. I would like to remind everyone that the labor markets there are much more flexible, and so we can adapt to higher demand, lower demand. The rationale really for the restructuring charge, as you say, is really to accelerate cost. Since COVID started, we have seen a tremendous growth of digital adoption that has gone from 35% to 50% now in most of the countries, Chile and Colombia, above 65%. Digital sales of retail products have almost doubled from 30% to 60%.
We are very confident that this restructuring charge will generate savings in 2022 similar to the charge, as Raj mentioned, by reducing 10% of the branches and 7% of full-time FTEs. We are also investing in middle and back office in terms of machine learning robotics that will also generate additional efficiencies. In summary, we don't expect any reputational friction from process automation.
Okay. My other question, I guess it ties in to the, you know, some of the credit, the performance guidance items like the, you know, the lower ACL ratio than the pre-pandemic that you expect in the coming year and presumably 2023, the lower loan loss rate. You know, next year and 2023 than you had pre-COVID. Is there also a statement in there or that, you know, you're just not expecting the unsecured lending categories to come back until much later than some people expect? And that's also reflected in that guidance in Canada, in International, where, you know, a lot of these balances are way below pre-COVID levels.
Hey, Gabriel. Phil, it's Phil Thomas. Nice to hear your voice, and thanks for the question. You know, as we look out for the next two years, we've seen significant growth in our retail portfolio in the secured lending business. So we've gone from 6% to 71% in real estate secured lending. We've also looked at, you know, how do we deepen the customer relationship through the acquisition of mortgages. So we're seeing a lot of great opportunity deepening through the mortgage acquisition, and then providing more products and services through there, like unsecured lending. We also have been investing heavily in international and data and analytics as well as digital.
We've been seeing some great uptick in their behaviors, and it's allowing us to have even higher quality of originations. You know, the normal course of business too, we look at how we're managing our portfolios and there's always gonna be times where we're going to, you know, exit some higher risk portfolios that we don't like. We're gonna build up portfolios that we think have a higher risk-adjusted return for, yeah, for the bank.
If I-
Yeah.
If I may. This is Ignacio. Maybe to follow up. We're seeing, of course, as Phil mentioned, there has been a business mix adjustment, sorry, in our balance sheet. We're seeing right now strong growth in all segments. I think that's the highlight for International Banking. The last two quarters, we grew 0.5% per quarter. We're growing 3%, 4% in commercial, 3% in mortgages, and all secured was flat after six consecutive quarters decline. Already strong, balanced loan growth in all segments in 2022.
If I summarize, denominator effect, a lot more secured loans pushing those ratios down and some lending activities that you're no longer doing.
Yeah.
Okay.
That's the right way to look at it.
Might wanna size those at some point, but, we'll leave that for another call. Thanks.
Thank you. The next question is from John Aitken from Barclays. Please go ahead.
Good morning. Dan, I wanted to dive into the increase in the card balances that we saw in the quarter. You know, obviously a positive all around. Do you think that this was just the general economic activity recovering, or do you think that you were actually able to gain some market share over the quarter?
Morning, John. Dan here. I think we gained market share during Q4. We're certainly pleased with the average balance growth. I would underline spot growth in the quarter. In cards, growth shows up more through the fee line as opposed to through the interest income line. As the prior question went on unsecured revolving credit in Canada, we are hopeful to see signs of revolving balances reemerge, particularly through the big holiday spending season. On share gains in the quarter in cards, we're pleased with how we took share in purchase volume in particular.
Great. Thank you. All over to you.
Thank you. The next question is from Doug Young from Desjardins Capital Markets. Please go ahead.
Hi. Good morning. Brian, you've been very vocal about not wanting to take restructuring charges in the past, so I'm just curious. Like, I understand the rationale behind this, but I'm just curious as to what's changed from your perspective, and are you more willing to look at taking restructuring charges in other business lines like Canadian Banking to adjust-
I think that comment of mine in terms of r estructuring charge dates back to 2016 or 2017. We've covered a lot of ground since then, including a pandemic. What became evident to Ignacio, Raj and I, and others around the table is that the pandemic changed a lot of things in terms of customer preference. We talked earlier about secured lending and in our international business has doubled since 2019. That's a big number. When you look at our business looking out over the next two or three years and wanting to perform for our shareholders, we felt that this was. We're respectful of our shareholders. It's not a big restructuring charge, but it's in keeping with us wanting to deliver for our shareholders. You're not gonna see any further restructuring charge.
I think the big takeaway for the Street and the analyst community is that, you know, the acceleration and adoption of digital internationally is at a much faster rate than here in Canada in terms of customer preference, and we have to be aware of that and cognizant of that. You'll see that in our numbers in terms of profitability and efficiency.
Ignacio, on the cost savings from the International Banking change, you know, what regions will this mostly flow through? What I'm getting at is when I look at your pre-tax, pre-provision earnings, you know, it's down really materially in Peru, and I think you talked about and most of this is due to lower revenues. You know, you've got FX has been a pressure there. You talked about the unsecured loan book mix changing. What I'm trying to get a sense of is more of this directed at, you know, Peru and Colombia where you've seen more pressures, or can you kinda talk about just where the changes in the cost savings will be starting to flow through by region?
Sure. This is Ignacio. It is really across the board. All of the countries we are seeing opportunities to accelerate the optimization of our distribution network offer this. This is across International Banking, including the Caribbean. In terms of revenue, while this is going to of course have a significant impact, as Raj mentioned, in our operating leverage that we will expect to be positive next year and a significant improvement in the productivity index. We are very positive about our revenue outlook in 2022 based on a high single-digit loan growth in all segments, NIM expansion, as Raj mentioned, and consistent fee recovery next year.
Thank you.
Thank you. The next question is from Paul Holden from CIBC. Please go ahead.
Thank you. Good morning. Want to try to tie together a couple of the discussions around International Banking with respect to this shift in loan mix. What you've told us is we should probably expect a lower NIM, but also lower PCLs because of that loan mix shift. I guess what we're trying to get at is what does that mean in terms of the earnings power for International Banking? Is it net neutral or one would assume that those secured loans require less RWA, so maybe you can put on a higher leverage and therefore offset the lower NIM? I think some thoughts around that might be helpful.
Sure, Paul. This is Raj. I'll start, and then I'll hand it over to Ignacio. You know, well, the international will absorb will go down, and that should improve the ROE in general of the business, and that's a key factor for us. But we also we don't think about NIM in isolation as you mentioned. We look at NIM and PCL ratios, all this adjusted margin. If you went back a few years, you know, if you made 440, 450 basis points, we gave up 140 basis points on PCL, and we know both are going to trend lower. Yeah, slight give probably on risk-adjusted margin in the short term, like through 2020, close to where we started, if not better.
It also gives us a lot of comfort when we can have consistency in earnings and less volatility in the numbers that we report across the International Banking business. Lots of factors, whether it's capital, whether it's volatility in earnings, a good quality book which will drive consistent growth in earnings, number of factors we look at as we determine how to shift our risk appetite.
In the past few years in terms of repositioning the international business. Part of that included exiting 20+ countries, selling five businesses in the pension related businesses, et cetera. Consumer finance, which is a small, very specialized business. We exited or downsized the business in Chile, the DR, and we were about to do it in Peru. Unfortunately, the pandemic hit. Small business, about CAD 1 billion of outstandings. It's smaller than that today. They had in our stress testing. We did what you think we do, and we're exiting the business, downsizing the business and moving on. We've taken that through write-offs and, you know, the rest of our unsecured businesses in Chile, Mexico, the Caribbean performed well within our expectations, and we're pleased with their performance.
You know, I would describe it more as housekeeping focused on producing consistent and predictable results for our shareholders. You know, so, you know, what comes off the PCL line comes off the margin line. If you take 40 basis points off the PCL line, that comes off the margin line. I wanna stress there are ample leverage for us to grow our business internationally. You're seeing that, as Ignacio said in the commercial loan growth t his quarter was 4. Behind that corporate loan growth was 8% in international quarter-over-quarter. There's lots of opportunity for us in the division. This was a tweak to risk appetite, as I call it, falling out of the pandemic. We're optimistic about our prospects for growth going forward.
Okay. Second quick one, if you don't mind, and that's just do you have any indicators around the prospects, short term prospects for the Caribbean business? It looks like it's continuing to lag here, but the data points I'm seeing suggest that travel is expected to improve at least sequentially. Still below pre-pandemic, clearly, but starting to see a nice uptick in travel. Any comments there would be helpful. Thanks.
No. At the end markets, also bookings are very high for the winter. Definitely we expect an improvement in the performance of the Caribbean, where we still have around $20 million opportunity in terms of fee income. We have large market share participation in terms of credit and debit cards. We're first and we expect a significant improvement in 2022.
Thank you. Thanks for all that.
Thank you. The next question is from Mario Mendonca from TD Securities. Please go ahead.
Good morning. Probably for Ignacio, with the bank's decision, and I think you've telegraphed it well over the last few quarters to maybe pull out of some unsecured lending lines in effect for loan growth and just business growth generally in IB. What I'm getting at specifically is if you pull out of that area, could it impact loan growth elsewhere simply because of any kind of bundling mechanisms that maybe are a little more prevalent in North America or sorry, in Canada? Does that phenomena exist in international banking?
Good morning, Mario. No, definitely. As Brian mentioned, these are very small portfolios that we exited because they were high risk. I can tell you that we are seeing very strong growth in International Banking in the Pacific Alliance countries in lines much better than the market. Actually, our loan growth this quarter was better than market growth in commercial, in mortgages and in personal and credit cards next year. Like in Canada, credit cards have been delayed because there's still a lot of liquidity. Consumers have a strong balance sheet, but this is fading away and we expect this. We are already seeing stronger credit demand, but we are well positioned within our risk appetite to have strong loan growth in all of the segments next year.
Okay. Somewhat different type of question. Moving to Canada, I try not to judge growth relative to income growth in Canada, and I know you can make a lot of mistakes getting too nervous about mortgages in Canada. There's plenty of people that have. But it really is starting to stand out the kind of growth in housing prices in Canada relative to income growth. Those charts are starting to look awfully troublesome. From the bank's position, you're very close to the mortgage market. Is this not an area where we should become a little more concerned, just seeing how much housing prices have started to outstrip income growth in Canada? Does it concern you that we're setting up ourselves for some grief down the road?
Mario, it's performance in the quarter. Originations were stronger than we expected, as well as retention, which is an item we've been re-engineering through the business for the last number of quarters. That supported the substantial quarter-over-quarter growth. Our outlook for mortgage growth next year is to begin to slow. We do believe that supply underpins price appreciation, and while that persists, should rates rise sooner in the year as I think many of us are expecting, we expect that to soften demand. When we think about the importance of what's happening around the household table, it's worth mentioning that what we saw throughout the entire COVID period as individuals were working from home, they gained a greater appreciation for their number one asset, which is the home.
The growth gifts intergenerationally through families, and that's an important source of equity movement, which we think supports mortgage growth from here, including through the risk lens. To underline, in our quarter and all year long, we did not see that HELOC book grow, which I know is an area of concern. The final point I would make on the subject of risk metrics, both at origination and at refi and renewal, FICO scores continue.
Thank you. One final, I'll try to be quick on this one. The normal course issuer bid, you know, before the restrictions on buybacks, NCIBs were announced but often not used. Maybe Brian or Raj, how do you look at this NCIB? Is it the bank's intention to actually buy 2% of the shares or it's just another tool in the toolkit?
Immediately, just by way of background, if you go back a few years ago to our acquisition of MD and Jarislowsky, we issued 34 million shares. We repurchased at about CAD 77. We repurchased 27. So we've got a delta of 7 there, which we intend to buy back. And obviously, our average cost is lower on those buybacks. So, we'll be prudent around price, but it's our intention to be very active in the market.
Thank you.
Thank you. The next question is from Scott Chan from Canaccord Genuity. Please go ahead.
Oh, good morning. I just wanted to focus on your other main secured book in Canadian auto compared to what I see perhaps gaining market share, if you could comment on that. Then in terms of the credit side, it seems that it's been a very strong indicator in this quarter and past subsequent quarters, and maybe kind of speak to the outlook there in terms of the clientele.
Sure. Thank you for the question. I'm glad you raised it. We sometimes speak here internally about the importance of seeing cars come back online, which you saw in the quarter. As the market-leading position in cars and auto loans, we were especially pleased with how we performed through the revenue line this year. Notwithstanding all of the media attention appropriately so on supply chain, we saw revenues grow in the full year, up 5% year-over-year, notwithstanding both at origination and right through to account management and collections in the auto business. We're active, becoming more active in the used car market selectively, where as you can imagine, margins are higher. What's perhaps most important to underpin is, as supply comes back online, we know customer demand is substantial.
Pre-order bookings for vehicles are at the highest that they have ever been, and direct-to-consumer channels are roaring. I think as new Canadians arrive in Canada, and bear in mind, close to 500,000 did, and opening a bank account with Scotia is a vehicle. As population grows, we're optimistic about the size of that market growing. With our market-leading position and a great performance on margin management, we think that's got more upside for us than the peer group.
Right. Just one clarification question. Raj, in your opening remarks, you talked about expense savings in international as a result of the restructuring charges in fiscal 2022. I didn't catch what you referred to or.
Hello, Scott. As this quarter, we expect that to completely fall to the bottom line as expense savings within International Banking in 2022.
Okay. Got it. Thank you very much.
Thank you. The next question is from Lemar Persaud from Cormark Securities. Please go ahead.
Thank you. My question is probably for Raj. It sounds like some rate hikes in Canada and international. If that's correct, what if there aren't any further rate hikes international or we don't see anything play out domestically? Does the higher margin guidance for 2022 still stand, or is it really dependent on those rate hikes?
Thanks, Lemar. I think the rate hikes that have already happened in the International Banking segment will definitely flow through in 2022. That's definitely a positive when you think about Q4 2021 numbers. The Canadian margin assumptions that we have had is really towards the latter half of the year, and most economists now believe it could be much earlier. If it didn't happen, I'll give you a little bit of perspective. 25 basis points of rate increases in the Canadian bank is about CAD 50 million of annualized NIAT. Really, if you think about margin expansion or the contributions to NII based on the assumptions we made, it's probably not material at all. It's a nice to have, but I still think there'll be margin expansion simply driven by the International Banking segment.
My next question is, are you really concerned about the level of inflation? It's garnering a lot of these headlines that we've seen over the past couple of months now. Is it the bank's view that this inflation we're seeing right now is transitory, so it's not really a concern? You know, if it is a concern, are you guys taking action to protect the bank against runaway inflation?
Yeah, I'll start. I think our economist view is that some level of transitory inflation in the numbers that we're seeing, be it here or across the footprint. That we believe will normalize once you see some of the supply chain issues normalize as some of those forecasts. I think we have it in our analyst deck, too. Inflation is expected to be above 2%, which is the Bank of Canada's target rate from our perspective. Does it worry us? Yes. From the expense line, right? Because expenses are going to be higher since they're driven by inflation. But as a bank, I think, you know, we've always done very well on the expense line. We know how to prioritize. We know how to take the expense cue or the growth cue from the revenue growth expectations that we have.
You know, it will likely result in higher expenses in 2022, but will get normalized in other lines as we look across the expense lines. That's how I would characterize it. A lot more to happen, I think. I think there's lots of conversations across the globe around inflation, and we'll see what central bank actions are taken to curb those.
Capital Markets, please go ahead.
Yeah, thanks. Just wanted to quickly go back to Ignacio. Ignacio, the restructuring charge, CAD 126 million pre-tax, let's call it, I don't know, CAD 80 million after tax. Is it as simple as if this initiative had been in place, then the segment earnings, for example, this quarter could have been CAD 20 million higher?
Let me start, Sohrab, and then I'll pass it on to Ignacio.
Okay.
I think, as you know, International Banking or any other business line, lots of puts and takes. To the restructuring charge specifically, yes, you're right. You know, it should fall completely to the bottom line. It'll be about CAD 20 million after tax per quarter. International Banking has other factors. We think PCL is going to be a tailwind for sure. We know revenue is going to be higher. There are two items I call out that we want to be cautious about. One is foreign currency. Now, this year, we had a huge impact on FX. You heard me say FX more times than I've ever done on previous calls because it's a huge headwind that we had in 2021. Tax rate. You know, we benefited because of the high inflation and how it plays out from a tax perspective in International Banking.
Depending on inflation, it could be a non-factor, it could be a headwind, it could be a tailwind. It could be any one of these three things.
directly to answer your question, yes, the expenses should fall to the bottom line and impact the quarterly results positively.
Okay. Ignacio, when you think about the international segment and, you know, I guess across Pacific Alliance region and the Caribbean, if you were gonna focus us on maybe one or two geographies, which two would you say you're most excited about over the coming year that you want us to pay particular attention to and not get distracted necessarily by headlines that may come out of elsewhere outside of those two jurisdictions?
Thank you, Sohrab. Good morning, Luke. Very excited about Mexico and Chile. Mexico and Chile are well above pre-COVID levels in terms of PTPP earnings. We are seeing and expecting a recovery in Peru next year. As I mentioned before, we also expect a recovery in CCAU. Overall, I'm definitely positive about the momentum in loan growth in International Banking, and I-
Thank you.
Thank you. The next question is from Darko Mihelic from RBC Capital Markets. Please go ahead.
Hi. Thank you. Just a very quick question for Ignacio with respect to the deposit growth. You know, your deposit growth is rather lackluster. Just wondering, is that a reflection? I mean, when you look at, for example, your Canada business, your deposit growth exceeds loan growth, right? In your instance it's like 1%. So does that have an impact on revenues going forward, specifically, I'm just thinking about fee income and whether or not you've closed the fee income gap. More importantly, you know, help me understand this better. We know the Canadian consumer on the other side of this pandemic has really saved quite a bit.
The government response perhaps may have been you know overdone and we're looking at you know labor shortages in Canada and everyone really on very solid footing. I'm not as certain about that with respect to the International Banking business and I kind of sense that the deposit growth being so weak may be a bit of an underlying reflection of that. Can you maybe talk to A, what the low deposit growth means for your business and B, am I correct in assuming that the consumer just is not on the other side of this pandemic is nowhere near as-
The reason we are seeing a decline in deposits or relatively flat this quarter is basically due to corporate deposits. This is because we have been managing liquidity. We have excess liquidity, and we are managing also net interest margin. The behavior of the consumer is very similar to Canada. In the quarter, we saw 2% growth Q- over- Q. Especially in savings and checking accounts, we have seen an increase of 18% year-over-year. It's a very strong growth in terms of personal deposits across the Pacific Alliance countries, especially in Peru and Chile. I expect that will continue. We have a lot of opportunities to grow deposits, particularly savings and checking accounts through digital, small business and of course, corporate and commercial.
Just a quick follow-up, Ignacio. I mean, some of the programs that were instituted for the pandemic in many countries actually involve dipping into your pension funds and so on. Does that mean on the other side that, rather than being free to spend, people will focus their efforts on replenishing, pension funds and so on? Is there any impact there that I should be thinking about?
No. The liquidity of the pension funds, I think a lot of that has been channeled to continue also to repay loans. Part of that liquidity is also reflected in billings of credit cards that are still below pre-COVID levels, low in revolving levels. The expectation in the market is that during 2022, this liquidity will gradually fade away. There are not significant disbursement of pension funds expected in the next year compared to what has happened during COVID.
That's not concerning or an issue?
No, it is not.
Okay, great. Thank you.
Thank you. There are no further questions registered at this time.
Okay. Thank you everyone for participating in our call today. On behalf of the entire management team, I wanna thank everyone for participating in our call. This concludes our fourth quarter results call. Have a great day.
Thank you. The conference has now ended. Please disconnect your lines at this time, and thank you for your participation.