All right. Welcome back to back. Aris Bogdaneris, Group Head, Canadian Banking, Scotiabank, welcome to the stage again.
Great to be here.
Big Habs fan. You reminded me. Another game tonight. Let's start with the ROE, like, that everybody's obsessed with these days, rightfully so. In Scotia's case, about half of the ROE expansion is expected to come from your business. Contrast that with some other banks where usually it's the ROE expansion in, you know, the U.S. or elsewhere, that's the driver. What are the keys for that, and how do you expect to close the ROE gap with your peers?
Right. Great to be here. The ROE in the first quarter was 18.1% for the Canadian bank. That's roughly 140 basis points up from a year ago, and I think it's correct to say the performance of the Canadian bank, of course, drives the overall ROE improvement at the enterprise level. The way we see it in the Canadian bank, there's four key levers to improve that ROE from the current base that we're at. First, clearly is improving the business mix or the product mix. This means both on the loan and the deposit side. What does it mean on the loan side? Increasing our non-mortgage balances in the subsequent quarters, that's going to help the ROE. Also, the mix shift in deposits, more day-to-day in checking. The second driver is RAM, risk-adjusted margins.
We see three drivers there. Interest rates now stabilizing and maybe even increasing. A big mortgage repricing next year in 2027. That will be a big lever. Obviously, PCL slowly normalizing over subsequent quarters. That will drive the RAM. Third area is fee growth. We saw it in the first quarter. Continued double-digit fee growth over subsequent quarters. Finally, last but not least, will be productivity. We saw signs of strong productivity in the last few quarters. This will continue. Between collectively those four, we should continue to grow the ROE. If I was to think about what are the key drivers, probably mix shift and RAM improvement are roughly 70% of the overall puzzle-
Okay.
to close the gap.
Sorry, can you?
Mix shift is simply more of the higher value deposits, checking day-to-day and operating deposits in small business and commercial, and more non-mortgage lending where the yields are higher.
Got it.
That's the shift in the balance sheet.
This dovetails on a couple separate discussions, the RAM and the mix shift. I guess, well, when I think about mix shift, and you're talking about deposits, more core deposits, less GICs, whatever, this is a shift of a shift. A few years back, you'd been, you know, part of your strategy was to accelerate deposit growth. There was a big surge in term deposits and today you're, I guess, shifting in the other direction. That's the retention of the deposits that you gathered four or five years ago and shifting them into a different product.
Yeah.
I'm using the word shift a lot, but.
Yeah.
Is it-
Yeah. Essentially what's happening is you're getting the shift out of term into day-to-day and savings, but more importantly in wealth products. Overall, when you think of the GICs maturing, 90% stays within the bank.
Correct.
Okay? That's an important point to make. Yeah. That's the shift we're seeing into wealth products and into day-to-day and checking.
Of that 90%, they're going into core, maybe lesser extent staying into GICs, I imagine.
Yeah. Yes, exactly.
All right.
There's a big movement into wealth, but I think that's common across all the Canadian banks that we're seeing.
Right.
Which is now you're starting to see that shift out as rates now have floored, starting to stabilize in the most recent period.
The risk-adjusted margin, you mentioned mortgages.
Mm-hmm. Yeah.
I'm just thinking that's, well, PCL next to nothing, God willing.
Yeah. It's more the repricing.
The 2027 is the-
Yep.
the big year potentially with
Big window.
Yeah.
Big window for renewals in 2027. We underwrote quite a few mortgages, variable rate mortgages in 2021, 2022 that were really challenged on the margin side. Those will be up for renewal, and that will provide a tailwind to our RAM as they reprice.
Right. This big, I guess, caveat there is competition, right?
Mm-hmm.
'Cause we've had this discussion.
Mm-hmm.
with a couple other presenters today, and they're all saying a similar thing, different timing, but hopefully competition is not an issue.
Yeah. Up to now, we've had a big renewal window also this year and a bit last year. We're seeing a very high retention rate on our mortgage renewals, as I mentioned also on our deposits. We're really good now and getting better even on just keeping those high quality clients into the bank.
Okay. Before I get in more of these product type questions, I do wanna you know, go back to targets. Another target or guidance, whatever you wanna call it, for this year was you know, to get the consolidated double digit earnings grow EPS growth. In 2026, the Canadian bank has to whatever, low teens.
Yeah. Mm-hmm.
-something like that, I supp-
Mm-hmm.
I suppose. The bank did it in Q1, largely because of capital markets. The Canadian bank growth was 5%.
Mm-hmm.
Was this part of the plan and you expect it to grade it up or is there another interpretation there?
I think it's important. Context matters. If you go back a year, in the first three quarters of 2025, the rate of earnings growth in the Canadian bank was actually negative. It was only in the fourth quarter of last fiscal year that we generated positive earnings growth that was 1%. That's why the 5%, Gabe, that you mentioned in Q1 has to be seen in that context. Going from 1%- 5% sequentially and going from negative to 5% is a visible jump. More importantly, if you look even more deeply into the number, that 5%, if you strip out the one-time private equity gains we had a year ago, that earnings growth in Q1 is not 5%, it's actually on an underlying basis, 8%.
Okay.
Closer to the double-digit target we set ourselves. That's important to understand.
If I look at the building blocks of the growth was, I think, flat or maybe a drag.
Well, yeah. Mm-hmm.
But the fee income growth was 8%, something like that.
Mm-hmm.
Different stories, margin versus fees.
Mm-hmm.
That was encouraging because at the 2023 Investor Day, there was a lot of emphasis put on fee growth.
Right.
We didn't see much of it for a while, and this was the first, you know, maybe the first, but a noticeable blip, you know, a positive blip. You know, what's behind that? What would make me believe it's gonna continue?
Sure. Clearly, the first quarter we saw a big jump in fee income, but it didn't just happen. I mean, it's a deliberate outcome of investments made over the last 18 months across a number of fronts, and I'll give you a bit of color here. I think the first most important investment we've made is actually building up our investment specialists in the branch network. We added 240 since Investor Day. That's a 40% increase in the sheer number of advisors out in the network dealing with customers. That has driven, in the first quarter, CAD 1.2 billion in additional mutual fund sales net. That's double a year ago and actually places us third amongst our peers in long-term investment sales versus sixth a year ago. Going from sixth to third.
Second, we've invested heavily also in our card business, a new modern card system, helping us engineer the shift to premium clients in our card business. We've had new product introductions, working the whole value chain, and we're starting to see a lift again in card fees. Third area, also is insurance, where we're investing, and you'll start to see that slowly climb. The fourth key area, I think which should not be underestimated, is our relationship with wealth, which is very strong. In the first quarter, again, we referred CAD 5.4 billion across our retail, small business, and commercial clients to wealth in which we get compensated. That's a 34% increase from a year ago. Again, sales power, cards, insurance, wealth combined collectively are gonna continue to help us drive double-digit fee growth over the coming periods. I'm pretty confident of that.
Fees, in general, how do you think about them longer term? I'm not a BNS-
Yeah
... Nova Scotia-specific question 'cause, you know, we have OSFI that's gonna make it easier for fintechs to enter the marketplace, and their, you know, I guess, MO is to go after, you know, fee-rich environments. You know, what do you think about your fee structures in the longer term?
Right
... given that dynamic?
I see from my experience also in Europe, where we saw fees get attacked primarily initially by fintechs and some of the other players was on the daily banking fees that we saw, but less on the card fees, mutual funds, investment side of the pieces, where we're actually growing our fee business. Yes, is there a threat again of fees being challenged by some of the new players who offer things for free? Yes, of course. But in the parts of our business where we are growing, I think we're pretty much protected to a large extent given the makeup of the fees that we're generating.
Okay. Going back to the building block thing, you know, revenue, we had good fee growth, but expenses were flat year over year, and that also helped your bottom line.
Yeah.
What's a more normal expectation
Mm-hmm
'cause that doesn't seem like an environment.
Right
where you continually have to invest.
Right. Clearly, flat growth is not a sustainable nor a desirable outcome for the business, of course. We expect low single-digit expense growth on a sustainable basis. Let's not forget, in the fourth quarter, we took a charge where we really reduced substantially the number of head office staff and obviously improved spans and layers and reduced a lot of the clutter in the head office, to be honest. That showed up in Q1. Part of the savings from that charge we've redeployed into more salespeople, digital, and technology, which over time, I would call this quality spend, will help you drive more revenues and productivity down the road. I'm pretty confident not only that we can sustain this cost discipline.
Operating leverage in the first quarter was the highest in 14 quarters, and we're confident we're gonna drive positive operating leverage through the year as well. All in all good, but again, we have to continue to invest, but again, invest in productive ways.
Okay. Switching gears, pun intended, for the I wanna talk about auto lending. The you know Scotia's one of the biggest in the country, has been for years. Every now and then we you know have a you know blip on the screen with you know someone in the industry having some higher losses.
Mm-hmm.
We have a blip on the screen now, or had one recently. Like, what's your reaction to that? You know, the whole concept, are they playing a different sandbox?
Uh-huh.
You're in the same park.
Uh-huh.
Why might the outcomes be different?
Mm-hmm
with for Scotia?
Um, so-
What are you seeing in the book, I guess?
Sure.
Sorry.
Sure. No, it's okay. Good question. Our auto business differentiates itself in several ways, and I think currently PCLs are elevated across the industry and across our peer group. I think what's different for Scotia's auto business is our business model is underpinned by our strong OEM relationships. We have the greatest depth of OEM relationships in Canada. That drives new vehicle sales of a higher quality, right? New prime, near prime vehicle sales. That's different from some of our competitors. I think the second differentiator is we stay with automotive assets. Some of our smaller competitors have gone into more recreational vehicles, ATVs-
Yeah, yeah.
... which we don't do, okay? We do automotive and particularly prime, and that brings us to the third point of differentiation. We have not chosen to go down the credit curve like some, going into subprime. We stay at the prime, near prime level, and you start to see that play out when you start to look at the results around. I think those are the three real differences in our auto business.
That's a their problem.
It's over there.
Not a you problem.
Yeah.
What about the terms of the loans? I know, like, every now and then we discuss that over the past few, you know, term loan auto loan terms have gone, you know, seven- eight years kind of thing.
Yeah. What we see, I haven't seen that being extended. Actually, the effective terms are even maybe a little less.
Okay.
We haven't seen the terms being extended, at least in our business.
All right. We talked about deposits. Well, risk-adjusted margin mix. You talked about deposits.
Yep. Mm-hmm.
The competitive dynamic can always be a curveball there. Are you seeing that? Well, anecdotally, I hear on the commercial side it's
Mm-hmm
It's heating up. How big of a challenge is that gonna be potentially?
Right. It is competitive, no doubt about it, especially when the pool of deposits is actually shrinking out there. It is competitive. That said, we've managed to grow our deposit NIM again in the first quarter, and that's the third quarter in a row that we've managed. I think more importantly, we're actively managing our deposit business from a portfolio basis, trying to optimize margin and volume. Also more importantly at the client level, where you have to make tactical short-term actions.
Mm-hmm
At a client level depending on the primary, primacy of the client, the sensitivity to the client. It requires a lot of data to actually optimize the value at that level. Between the two, despite the competition, we're actually improving the margin, improving the mix, but it's a daily ground game. No joke. It's competitive out there.
I don't know if you can give an actual real-world example or illustration. What would Scotia do today or not do today versus what it would've done a few years ago? 'Cause you did touch upon-
Yeah
the primacy.
Yeah. Right.
when we, you know, defending the margin.
Mm-hmm
... you're like, you're willing to let-
Right
market share go away. Is that basically it?
I think it's a very important question, and I think the fundamental shift has been less worried about headline deposit growth and more about the qualitative stickiness of the deposits we do gather, and I think that's been the shift. Our deposits overall are down 10% year-over-year, but more importantly, the most valuable deposits, checking day-to-day, are up 5%. You see that accretive to the ROE and accretive to NIM. You've got to also manage both, but you have to have one foot in front of the other in terms of driving more value, more stickiness. That's the difference from the past, I would say.
I guess better partnership with the wealth business probably.
Of course. Remember-
Just to add.
Mm-hmm
... add a bit more to that. You mentioned the 90% stays with the bank.
Mm-hmm.
What's the split, I guess?
Yeah. So a big chunk. Again, CAD 5.4 billion in funds and deposits were referred over to wealth. We have to earn through that in the Canadian bank, right? The numbers you're seeing is post that. The more important thing about the shift is the key fundament for us is getting the right client in front of the right advisor, right? That's why this partnership with wealth is so important because if you don't have the right advisor in front of the client, over time that client won't be served and will leave the bank and you lose everything. This idea of referrals is to ensure we keep the client in the bank and serve them and actually increase the share of their wallet. That's why these referrals, as they're growing, are so important to us as an enterprise.
Tangerine. Is there anything i nteresting to update there?
So-
I know it, it kinda-
It's quiet.
comes and goes as far as a topic of discussion.
Um-
I'm going with it today.
Yeah, no, good for you. As you know, in my previous life, I was responsible for probably 11 Tangerine at ING, and we are doing a lot of things under the radar at the moment to rebuild what is, I think, an incredible asset for us, and not a small asset. There's over CAD 50 billion, almost CAD 50 billion in deposits there. What we need to do is revamp this business for the modern day. What does that mean? We're investing, and it will be unveiled in due course. A new technology, AI-enabled, new value propositions across wealth, small business, and generally to get more growth out of it as a full bank. Not as a deposit gathering vehicle for the retail bank, but as something that can stand alone and compete with the best digital banks in the world.
This is now in process, and in subsequent quarters you'll hear more and more about how Tangerine now will come and relaunch, quote, unquote, "Tangerine 2.0," let's call it.
Okay. You know, I don't wanna end on a credit question.
We don't have to end on.
No, no, I'll ask it now because.
Okay
I may have ended on a downer a couple times ago, and I don't wanna do that.
Yeah
Let's do the credit thing now. Your bank was talking about unsecured credit losses increasing over the last little while and, you know, which product lines?
Mm-hmm.
Credit cards. The auto book seems to be not secured.
No, mm-hmm.
... the auto book seems to be going well. The credit card is not that big-
No
at Scotia, why the need to flag it?
Yeah. I think we saw in the previous quarters the unsecured book. I talked about credit cards and ULOC, unsecured lines of credit.
Mm-hmm.
PCLs growing. Since it started servicing, what have we done? We've done, like I heard the previous speaker talk about, obviously, you start looking at the book more deeply, and you start tightening the underwriting upstream, right?
Mm-hmm.
We saw that in some of the higher risk cohorts that we identified. No need to go into details. More importantly is on the collection side, I also heard it from the previous speaker, that what we've also done is invest in collections in a different way. Of course, we've added collectors like everyone would expect in a high-stress environment, but more is digital outreach and self-serve mechanisms where clients, you can get much more contact with them earlier. Because I think the game in unsecured is getting to them earlier. We've seen the impacts of both the underwriting tightening and the collections, I would say, focus, where delinquencies, 30+, 90+, entry rates going into delinquency, roll rates, vintages, slowly starting to improve in unsecured, okay?
It's a constant effort, and it's still stressed out there, so it just means you have to do things faster, earlier than you otherwise would. We're seeing the improvement of that. Again, over time, the RAM story will start to materialize as those PCLs gradually come down, particularly in the unsecured business.
Acting early, we're looking at the prospect of, well, more insolvencies and, higher rates. We're both back on the table. Like, is that-
Could be.
... spurring any action at the moment?
Yeah. I mean, again, I can't predict now with the latest geopolitics what will happen.
Yeah.
I think the only thing that we can manage, and we say it often, is what we can control. What do we control? We control actually strengthening and anticipating stress, actually continuing and getting ahead of it, both on the underwriting side, but also on the collection side. It's important to note too, that in the past quarters, we've actually engineered quite a significant shift in the quality of our unsecured book. Premium clients or premium card products now constitute 40% of new card acquisition. 40. Premium balances in our unsecured book have grown 10% year-on-year. There is a qualitative improvement actually in the card balances that we have today. Every quarter, we expect this to continue until we get a much bigger proportion of premium clients in that base.
That's in credit cards?
Yes.
40% are premium.
Our new acquisition is now coming in our premium card products. Right.
Oh, a product, not.
Product, yeah.
not customer.
Obviously.
Okay
A premium product is linked to a premium customer.
Yeah, yeah. Okay.
Okay.
Wrap up on commercial banking then.
Yeah.
That's one that's been of a, you know, a bit of an evolution over the past couple of years. Can you maybe give us a timeline and-
Mm-hmm
From where you started to where we are now, and what your outlook is for growth there? Because there's been a deliberate strategy of maybe exiting some relationships.
Mm-hmm.
Are we done that?
Yep.
From here on out, where do we go?
Commercial's very important business for us, of course. Actually now the end of what I call the margin enhancement phase of commercial is coming to the end. Last year, pre-tax, pre-provision profit in commercial through this mechanism of. We call it value over volume. We call it margin enhancement. 25% up year-on-year last year, but now it's time to grow. What does that mean? Our pipeline is getting bigger. It's starting to mature. We have put a lot of effort in increasing sales capacity over the last 12 months in our mid-market sub-segment. The paydowns we saw in commercial real estate have come almost to an end. The paydowns now is starting to build.
Through all this, more RMs, pipeline maturing, we've actually started to see growth in commercial on a spot basis, month-on-month, and quarter-on-quarter, we'll see it. Now it's really about continuing to build through that pipeline growth and start to come in line with our peers from a market growth perspective. Something we don't talk nearly enough about, though, in Scotia is the small business segment, which also shows up in business banking. That is growing close to double-digit as we've launched new value propositions in healthcare, professional services, accountants, where we're getting double-digit growth at good margin, and we expect this to continue also throughout the year and form a bigger part of what we call business banking lending. Again, part of the mix shift I talked about earlier.
All in all, feeling pretty good about commercial, and we'll see that more in the second half of the year, this growth in the commercial balances.
All right. Well, wrapped up another good discussion here, Aris. Enjoy the rest of your day and-
Thank you.
Enjoy the hockey game tonight.
I will.
I hope.
Thank you.