Morning. We're going to get started here. I'm Brian Morton with Cover Canadian and Latin American Banks here at Barclays. We're very pleased to have with us Aris Bogdaneris. He's the Group Head of Canadian Banking with The Bank of Nova Scotia. Welcome, Aris.
Great to be here.
Thanks for coming back. Great. Let's start out with the macro backdrop. Tariff and trade policy uncertainty is once again kind of clouding the outlook for Canada's economy. How are your customers preparing for the potential impact of another round of higher tariffs? To what extent could the Build Canada Homes help offset these pressures?
Well, before I get to that, I just want to mention, two years ago, I was on this stage, and early in my tenure, we talked about the plans we had for Canadian Banking. At that time, I laid out the strategy really about building the foundation and focusing on primacy. Fast-forward two years, and we'll talk about it, I'm sure. We're making really strong progress across all the dimensions we talked about. I'm very pleased to be here again. On your question on tariffs, what are we seeing on tariffs? Tariffs aren't new. A year ago, we've been dealing with tariffs for the last year, and all the noise around it.
What we've seen in our commercial bank is our clients are very resilient, and they find a way to keep going and adjust, and we're seeing actually the strongest deal pipeline we've seen in a long time in our commercial business. On our retail side, we're also very vigilant. We're watching which clients are vulnerable, and we're close to them, of course. We're managing, and I think the investment summit this week by our prime minister this week is a very important one for Canada in terms of gathering the interest around investment. We saw the GDP figures also recently among very strong. By and all, we manage, and we continue to be vigilant, and we're confident that we can continue to build the business, and we're seeing it.
Actually, just coming into this, I saw there was a press release came across that Scotiabank is committing CAD 100 billion to Canadian industry.
Right.
Can we talk about kind of like the timing of that and thoughts around that and maybe opportunities where you could not just do lending commitments, but just expanding the relationship with your kind of Canadian domestic partners.
Right. Particularly in oil and gas defense, we're already heavily engaged with our clients in that area. Obviously, the commitment we're making is not only on our current book but also going forward, and we're obviously building up our presence in Western Canada in the areas and regions we believe will benefit from this commitment. We're very confident that this will be a big plus for our bank and big plus for Canada, and we're going to be right lockstep with that.
Great. I want to go back to when you talked about when you were out on the stage two years ago and kind of laying out the strategy. I think part of that strategy was getting to the 24% ROE for Canadian banking. After some margin compression in 2025, partly due to the PCLs. You've seen some ROE expansion has been stronger so far in 2026. Maybe kind of talk to us about what are the key drivers or what are the key drivers of further improvement? How are you thinking about that timeline to reach the 24%?
So as you saw in the third quarter the results very visible on the progress we're making, and that progress didn't happen last quarter. It's been a culmination of two years of effort across the entire Canadian bank, and the effort really is about building a more diverse business, a business that's focused first and foremost on driving primacy with their clients versus volume and market share. Third, bringing in a culture of discipline and consistency. The ROE expansion that we saw in the third quarter driven by four key levers, which will continue into the foreseeable future. One is the business mix, changing the business mix, moving from being a mortgage kind of driven bank to a diversified bank that gets diversification not just in mortgages, but in small business, commercial banking, credit cards, and diversifying the asset side. Second, diversifying the liability side.
When I talk about liabilities, I talk about the whole savings rainbow moving from just GICs to day-to-day savings and investment funds. We're seeing that business shift happening, having a very strong impact on NIM and revenues. The second aspect is improving the RAM, the risk-adjusted margins, particularly in our mortgage and auto business, which is 70% of our loan volume. There's a huge repricing going on in our mortgage book this year and next year, almost to the tune of CAD 80 billion in mortgages going to be repriced. Some of these mortgages were booked five, three years ago at thin spreads. There'll be a huge RAM opportunity also in auto, where we see lower RAM cohorts falling off and new business being booked. So the whole RAM improvement and being very disciplined on our pricing will have a big uplift in ROE, particularly in F2027.
The third aspect, and you should have seen it in the results, the growth in fees. We've historically punched under our weight in fee income. That's about to change, and we've seen it in the last two quarters where fee revenue is actually growing above 20%, driven by card fees, mutual fund fees, and insurance. We want to continue along this vein because we know that in terms of ROE accretion, fee income is very important. No surprise, finally, the fourth lever is productivity. When we talk about productivity, what I mean by productivity is about how we're changing the channel mix, less physical, more digital, how we're adding salespeople, how we're reducing non-salespeople, how we're actually reducing the FTEs we have in the bank, yet growing sales.
Between those four levers, you will see ROE not only going up, which you mentioned, NIM expanding five quarters in a row, op lev improving four quarters in a row, RAM improving 11 points year-on-year, fee income above 20%, and we are growing non-mortgage lending faster than mortgage lending for the first time in two years. All this put together is driving that ROE expansion that you saw in the third quarter and the second quarter, and will continue to see going forward.
Okay. You mentioned primacy twice now, and that was another important theme that came back at Investor Day. You were talking about closing the gaps with peers. I know you talked about the initiatives. What are you doing to deepen the primary relationships with retail customers, and which initiatives should move the needle from here?
Right. I think the most important element when we talk about primacy is in the whole day-to-day account space, and how you build primacy through your day-to-day, and how you attach bundles and multi-product when you are selling your day-to-day or checking accounts. That is the first. I think a good illustration would be in our mortgage business, where historically we have run a mortgage business that was a single product business where we were building up balances, and spreads would vary depending on the cycle. For the last two and a half years, we have completely pivoted, and for us, the mortgage business now is an anchor to primacy. What I mean by being an anchor to primacy is today 95% of the inflows of our mortgage business come with a Mortgage+ bundle, three plus products. This is very different from how we operated before.
You can imagine when you do a mortgage, you now get the day-to-day, you get the card, and then the additional product could be a savings or investment. That has driven 10% additional day-to-day volume coming through the mortgage door, 10% more credit card volume coming through that door. Interestingly enough, our mortgage clients are more affluent than our general client base. These day-to-day accounts hold higher balances and are stickier, and our card accounts that come through our mortgage business have higher purchase volumes, higher balances. This is now how we are using our mortgage business to drive primacy, and today only 13% of our mortgage balances are single product customers. That is very different from years ago.
That's just one example, but this idea of primacy has to be at the point of sale and where we're integrating the client view in terms of our incentives, in terms of the way we measure people. All this is helping drive a higher NIM and higher revenues.
Excellent. Aris, I want to touch on loan growth. Loan growth has been healthy year to date, particularly in cards and mortgages. Aris, on cards, how are you driving greater usage among retail customers? Alternatively, is this the right point in the cycle to lean into growth with unemployment still elevated?
Right. I think we, just talking about the cycle. Early in the cycle when we saw deterioration, we actually de-risked the portfolio more than a year ago. We're also seeing that now in the improvement in the PCLs in our card book. I think more importantly, our card business is a very interesting business. It's relatively small compared to the other banks, and we don't punch our weight when we look at our other products like mortgage or deposits in terms of comparison. We saw a huge opportunity in our card business to rebuild the card business and help us drive primacy. What do I mean by that? We brought in an entirely new team, and we launched what we call Brilliant Basics, and I think what's important if you ever run a card business is how you have to get the whole value chain connected.
That's what we've done. Senior people coming in with card expertise and connecting the value chain. Second, we've now attached our card product to the different bundles we offer on day-to-day and mortgage. There's been a whole what I call premiumization of our card business. What do I mean by that? 45% of all new card acquisitions are what I call premium card clients. That's a far cry from how we've done it before. We're also leveraging Scene+, our 50 million-strong loyalty program, and tapping in to that rich value proposition where we have gas, groceries, entertainment, dining, travel to actually increase engagement for our card users. This is an important driver of our card growth and continuing. We're seeing improvement in RAM, we're seeing increased card balances, and we're seeing the fees growing higher than 20% because of the premium nature of our card business now.
It's been a big change. We still have room to go to close the gap with some of our peers. This is going to be a big driver of revenue growth, RAM improvement, and obviously ROE over time. PCLs, as I mentioned earlier, are coming down quarter after quarter. A lot of effort is done, but we've de-risked the portfolio, and we're targeting different types of clients than we did in the past.
Great. Maybe touch too on mortgages. Are you still adding mortgage assets at attractive margins in this rate?
I think that's where I'm most proud in the discipline we've showed on our mortgage business in terms of pricing. Those days are gone where we're going to fight for market share and lower prices in mortgages to compete on market share. We've actually grown in line with the market this year, and we will roughly 4% mortgage growth this year. What's important is what I mentioned earlier about how the mortgage is not a standalone product simply to grow, but a key enabler to driving primacy and multi-product acquisition. Our ROEs in our mortgage business have improved, our margins have improved, but we're going to stay disciplined and focus on the renewals that we see. CAD 75 billion- CAD 80 billion in mortgage renewals are coming up in F2027.
There's been a substantial number of renewals, I think CAD 35 billion in 2026, where we're focused on retaining those clients. We've already paid the acquisition cost, and now the ROE becomes very attractive if you retain them. Here's where we will look at margin, but in the context of the entire relationship. That's what's important of moving from a product view of margin and returns to a client lifetime view, and that's the change we've brought to the bank also through, again, our mortgage business.
Great. Turning over to the commercial banking side, we kind of touched on this a little bit earlier, but how is the business positioned to benefit from the Build Canada Homes, and could that translate into an acceleration in loan growth as we move into 2027?
Our commercial business is an important business for us, and I think over the last two years, what we've focused on is, I guess, two things. We've put boots on the ground, first and foremost. We've added substantial sales capacity in our commercial business, but primarily in the mid-market segment, which is a rich source of deposits and cash management capabilities opportunities, and also in the small business segment. First and foremost, invest in sales. Done that. Second, invest in the capabilities in mid-market in those areas that are growing in Canada. You talked about the initiative of Canada in the prairies, B.C. and Quebec, where we've been light with boots on the ground. We've added substantial sales capacity in mid-market.
The pipeline that we've now built over the last two years with this new sales power is starting to materialize, and you're seeing that in the growth in the second quarter, third quarter, and it will continue as this pipeline materializes. Of course, the opportunities around defense, oil and gas energy, again, in parts of the country, we're going to be well-positioned with our sales force there and our capabilities to take advantage and support the Canadian economy and be there where the clients need us. I think on the commercial side, we've also seen the PCLs come down five quarters in a row. We have our coverage ratios at the highest level that we've ever had.
I think this will be a motor for us for growth, not only the mid-market, but also the small business, which is growing lending 10% year-on-year, which we don't talk about much. Again, these two areas are areas where we're going to focus on and continue to grow, which will also help the NIM, help the RAM, and help our overall profitability.
Great. Another thing I am curious about too is earlier, I guess in the summer, we saw the OSFI lower the Domestic Stability Buffer 50 basis points to try to spur on lending. Any thoughts on how does that change the way you go to market or how you apply capital to kind of different lending relationships?
I mean, for us, we have a strategy. We understand the businesses we are in. We understand our clients. We drive primacy. We focus on the demand of our clients, the needs of our clients. We know the sectors that we operate in very well. We know the clients very well. We understand the risk reward very well. It is not suddenly now that we have more capital to deploy that we start to loosen or whatever. We stay disciplined. Now, at the margin, could it provide some opportunities? Yes, but it does not change much, to be honest for us, because things are demand-driven and not supply-driven for us in terms of how we run our business. Yeah.
Great. Then switching from loan growth over to deposit growth, I kind of think deposits have kind of lagged a little bit here. Were there any specific headwinds in this year to deposit growth? Then looking ahead, do you think you can continue to grow deposits in a potentially rising rate environment?
Right. So I think when I take a step back and I look at our deposit business, when you think about the growth in deposits, when I talk about deposits, I mean the full range across retail, small business, and commercial since Investor Day, it has been sizable. More recently, in the third quarter, we saw on the retail side, day-to-day in savings deposits were up 1.2% quarter-on-quarter. That is around double the Big Six average. So we are happy with that progress, and that progress will continue. What we are seeing is on the day-to-day side, checking accounts. The increase, as I mentioned before, of the premium nature of the day-to-day accounts that we are booking, and that means higher balances and just much stickier day-to-day deposits. The second is the savings side. In the bank, we launched the new high-interest savings account in March.
We have added CAD 6 billion in balances in our savings book since that time. 70% of that balance growth is coming from new money, new clients from outside. After the promotion period, there is a higher level of retention than we have ever experienced with the savings product. That said, the market is very competitive.
Why do I say that? You are having massive flows from term deposits into wealth products, which is actually making the term market smaller and highly competitive. Clients are preferring to keep their money in savings to be liquid. This competitive nature in the term market is increasing. That said, when I look at the entire savings rainbow, including investment funds, deposits, term, day-to-day, we are growing our share, and that is very important. If markets now turn and things start to flow back the other way, we are well-positioned with our product set and our primacy strategy.
That is how I view the deposit market, although I would say one thing. The key to deposits, of course, you compete on price, and it is important to price right. But giving the right advice to our clients goes a long way in creating the stickiness that we need in the deposit base. It is a much easier way to compete through proper advice for the client in order to maintain those balances, and that is what we are learning over the last few years as we drive this primacy strategy.
Great. Let me ask about two. We look back to Investor Day, you issued your medium-term objectives. This was all kind of established before the recent acceleration in AI. Can you talk about some of the AI initiatives you are implementing across Canadian banking, and how could they affect kind of your financial targets?
Right. I think it is early in the game in AI, and the organization is at a relatively early stage. Having said that, I think there are a few interesting use cases that we have seen that we have deployed. I think the first is just on software and accelerating software development in areas like data, digital, and analytics, where AI has helped us speed up the cycle of software development. That is one. Two, we see a very powerful use of AI in preparing our RMs for clients, prospective clients, and existing clients. A huge time saver. That is the second. Third, in the mortgage underwriting process, in terms of the verification process within underwriting and how AI has allowed us to speed that process of verification up substantially, almost a 70% savings in time to help us speed up the time to yes.
Then obviously, what a lot of banks are doing is just we have an enterprise-wide Ask AI tool where 18,000 of our associates are able to inquire through AI and get answers on different things and save mounds of time to spend more time with clients. Going forward, the opportunities as the use cases actually get deployed will be in driving some productivity and more productivity. But where will that productivity come from? I think agentic, when agentic workers now start to get developed to work alongside humans and take full tasks, not bits of tasks, but full tasks, you will see a productivity gain. Productivity gain, not that people will disappear, but they go and work on higher value-added tasks or exceptional types of processes. But also you will not be adding workers at the same rate as you grow your business when you have agentic.
All these things put together are important. But part of a bigger construct of investment, not only in AI, but in digital, in our sales force, in our channels, all the things that I have talked about to drive that positive operating leverage over time and keeping the run cost manageable, because I think that is what we have done really well in Scotia. The op lev has been positive four quarters in a row. Our run costs, as I mentioned, are managed very tightly, and that is the key to generating positive op lev. It is not so much the investments, although they matter, but the run costs and how they are being managed, and we have been doing a great job on that, and agentic and AI will only help further.
Okay. Staying on the technology side, let us talk about the digital offering. Digital reached 40% of total sales in 3Q. How much further do you think adoption can go, and what would that mean for both growth opportunities and cost to serve?
Right. I think digital, as you mentioned, getting to 40% of sales is a big achievement considering where we started. But I think the key is another metric we look at. How much revenues are coming through digital panels? Today, we are roughly at around 18%. F or me, getting that 18% share of revenue through digital to 30% is still the goal we have put in place for our business. T hat requires still a lot of work to go because when you think about where you make money, there is on the lending side, on the savings side. H ow do you get more and more of that through digital channels? That is the next step. We have done a fantastic job of taking traffic outside of the branches where people would have to. People do not want to go to a branch unless they feel it is worth their while.
For often the case, at least in our bank, people were going to the branch because they could not self-serve on mobile. The team has done a fantastic job of putting those capabilities in place. Now the traffic we do see in the branches increasingly is for reasons that clients value financial advice. Going further, we are going to continue to invest in digital and get the number probably up to at least 50%, is what I have seen in previous places. More importantly, it is using digital not only for sale, but actually more process entitlement in terms of first time, right, getting things through like you could expect. There is a lot of opportunity still to lower our processing costs, or I call them fulfillment costs in the bank, and get that cost to income even lower than it is today at roughly 45%.
You cannot just think of digital. You have to think of your physical channels. Two things that I am very proud of is how we are increasing the amount of specialists in our 800 branches. When you look at our branches today and you look at them five years ago, the amount of specialists, whether they are small business specialists, financial advisors, has increased dramatically. More importantly, we have added 500 virtual advisors. Virtual advisors are people who are not wedded to any branch, who cover clients, and we call it unlocking the clock. They work at any time zone, anywhere and provide our clients with ready access. This is new for us. Here again, going back to productivity, when you are adding more sales force and you are investing in your sales force, you are getting a return in less than 12 months.
That is also helping your op lev going forward. I am very pleased with the whole channel mix progress we have been making.
I want to also touch on, you have a significant presence in the digital-only banking through Tangerine. How are you applying that experience across the broader bank, and how does that platform strengthen your competitive position as banking becomes increasingly digital and AI-enabled?
Right. So great question. Prior to joining Scotia three years ago, I was in charge of ING globally, their retail and commercial business, but including in my remit was ING Direct. In six markets, including Australia, Germany, Spain, we ran full-fledged digital banks competing with the bigger incumbents. As you know, we have an asset called Tangerine. It has 2 million customers. Scotiabank bought it, I think, in 2012. It was originally designed to gather deposits. When I arrived, I saw the potential and the capability that I had experienced in my time previously at ING that this could be far more than a deposit gatherer. We spent the last year and a half with new leaders investing quietly, deliberately in building modern capabilities, a modern tech stack, AI-enabled, new segments.
All this will be unveiled in the coming quarters, and I call it the new Tangerine, to be able not only to compete with some of the fintechs that are emerging, but more importantly, to compete with the bigger banks and gain share. This will be a faster-growing piece of the Canadian bank in the coming years. We're already looking. We are extending into wealth, small business. So extending the segments, but also bringing a modern tech stack that's fully AI-enabled, that will be a tailwind for Scotiabank going forward, to gain share with a lot of different segments that normally wouldn't bank in Scotiabank today. I'm very excited about Tangerine, and more will be said about it in the coming period.
Okay. Give me a little bit more on the productivity ratio, and just talk about how are you balancing your efficiency objectives with the need to keep investing in the business, and where do you see the greatest opportunities for improvement?
Right. When you look at the productivity ratio, you have revenues and you have expenses. Clearly, everyone knows that. On the expense side, to drive a better productivity or improved productivity ratio, you have to look at two things. You have to look at your run costs, which are, for most banks, 80%-85% of your cost base, and then you have investment. Both are important. Let's not forget that to get the productivity ratio down, you have to manage your run. What we've been doing at Scotia, we talked about it earlier, the substitution on the channel mix of less physical, and we've reduced our branch footprint substantially. Again, this year, we're going to reduce and consolidate our branch network. So less square feet, but more specialized sales in there. Then on this other part, adding salespeople.
That's an investment that we don't talk about often, but adding virtual salespeople, branch salespeople, that's an investment we're making. The other investment we're making is on digital and AI, as we discussed earlier. But together, they have to work together. This whole channel area is a key enabler to driving higher productivity because those salespeople will generate revenues down the road. The other investments we're making, obviously, is in process fulfillment, I talked about that, but we're also investing in our business. You can see that having a positive op lab four quarters, soon to be five, in a row is because we're very deliberate on spending. We don't spend on non-client facing people anymore, actually. We're very disciplined. Actually, that number has come down dramatically.
But it's very important that we continue to work our channels because that's where the value is for us while we stay and upkeep our tech, and we've been investing in tech and cyber and security, our system uptime. All these things matter, but remember, that investment is a small part of your total cost base. You have to manage both.
Great. I guess before we open up to the audience, to wrap up, is there anything we haven't covered that you see as an important driver of success for Canadian banking? Or any final messages you'd like to leave with the audience?
I think I would leave the audience with three messages. I think the first is the strategy is working, and we're not going to change it. We're going to keep focused and disciplined. You saw it again in the quarter. You even saw it in the earlier quarters. Strong revenue growth, actually record revenue growth. Strong record pre-tax, pre-provision growth. Very disciplined and very deliberate in collections and how we manage risk. PCLs down across the board in most products, with the exception of the two mortgages cohorts that I mentioned. Cost discipline on both run and investment. Again, you're seeing the improvement in the operating leverage, NIM expansion, RAM expansion, fee expansion. The strategy is working. However, the second thing I would say is we're only in the fourth inning of what I think is a nine-inning game. There's still a lot of room to run.
Of just getting the basics done better in a bank of this size. That shouldn't be underestimated. A lot of the work and a lot of the value we see in the ROE expansion is coming from running a better bank more consistently. The third and final thing I would say is we have other weapons. We're going to continue to build on the success and growth we're doing in small business and commercial, and we talked about Tangerine. Tangerine is an asset no other bank has in Canada, and we're going to fully maximize the value of that asset over the coming period. Taken all together, I'm confident, notwithstanding some of the challenges we have in the geopolitics, but we manage it. We're disciplined.
I'm confident that I've taken a lot of the variability out of this business through that discipline of building foundational capabilities, domain expertise. We're going to continue to deliver. That's the message I want to leave people with.
Great. We'll take any questions from the audience if there are any. We've got one up at front. [inaudible] .
You started up with the question of tariffs, the impact of tariffs.
Yeah
and the negotiation will forward back.
Well, again, as I mentioned, up to now we have managed quite well, and tariffs have been. Now it has been a year we have been working through. I cannot really speculate the impact because we do not know what the government support measures could be. There are so many moving parts. I think what we do is we try and focus on what we can control. We focus on the clients that we have. We are close to our clients. We are obviously cognizant of the sectors I mentioned, trade, I mentioned manufacturing, corporate real estate, ag. So we are also cognizant and stress testing and being very careful in our underwriting in sectors that could be impacted. But at the end of the day, we are managing through it. As I mentioned, the loan pipelines that we are seeing are robust.
The sentiment in Canada is very positive, increasingly so with the summit and some of the investments we see. So obviously we deal with it, but it is not holding us back in terms of what we think we can deliver for Scotiabank.
Thanks. One other question up front.
Yeah. Any thoughts on going further with the KeyBank investment?
I think at this point, we're happy with our KeyBank investment, and it's done what we wanted it to do, and we're pretty happy with the current status quo. I don't see any change happening there. Yeah.
Great. If there's no more questions, maybe join me in thanking Aris for his presentation and time here today.
Thanks.