Scotiabank assures it has 'a lot of buffer' against downturns

Earlier this week, Bank of Nova Scotia CEO Brian Porter assuaged concerns that the country’s third-largest lender is vulnerable to the worst impacts of a downturn, stating that the bank’s $205-billion mortgage portfolio has a significant buffer against such an event.

Porter expressed confidence in the bank’s capital and liquidity levels, with the fundamentals leaning upon high-quality assets.

He also cited the lender’s profitable and “extremely well diversified” portfolio as a major strength.

“There are always going to be those who take an opposing view, and we'll prove them wrong in the long term,” he said during Scotiabank’s annual shareholders’ meeting, as quoted by The Canadian Press.

The executive added that a crucial component of the bank’s readiness is its regular testing of its mortgage portfolio against “very harsh metrics” like a massive increase in unemployment and a drastic 600-basis-point interest rate hike.

Moreover, the bank’s mortgage portfolio is 42% insured, with the remainder’s loan-to-value ratio at approximately 54%, Porter said.

In February, Steve Garganis of Mortgage Architects observed that despite national mortgage growth reaching a 17-year low, Canada’s largest banks are showing no signs of falling profits.

“The banks are still winners,” Garganis said. “The mortgage rule tightening by the Trudeau government has forced consumers to go to banks, as they lend their balance sheets and have lots of cash.”

“While the overall mortgage volume has slowed, the losers are the non-bank lenders because they must portfolio insure everything and they can’t insure refinances, houses over $1 million, or rentals of single-unit properties.”