INVESTOR PRESENTATION - FOURTH QUARTER 2018 - SCOTIAFUNDS
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Investor Presentation Fourth Quarter 2018
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securities legislation. Forward-looking statements may include, but are not limited to, business involves making loans or otherwise committing resources to specific
statements made in this document, the Management’s Discussion and Analysis in the companies, industries or countries. Unforeseen events affecting such borrowers,
Bank’s 2018 Annual Report under the headings “Outlook” and in other statements industries or countries could have a material adverse effect on the Bank’s financial
regarding the Bank’s objectives, strategies to achieve those objectives, the regulatory results, businesses, financial condition or liquidity. These and other factors may cause
environment in which the Bank operates, anticipated financial results, and the outlook for the Bank’s actual performance to differ materially from that contemplated by forward-
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Material economic assumptions underlying the forward-looking statements contained in
By their very nature, forward-looking statements require us to make assumptions and this document are set out in the 2018 Annual Report under the headings “Outlook”, as
are subject to inherent risks and uncertainties, which give rise to the possibility that our updated by quarterly reports. The “Outlook” sections are based on the Bank’s views and
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accurate, that our assumptions may not be correct and that our financial performance reviewing these sections. When relying on forward-looking statements to make
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We caution readers not to place undue reliance on these statements as a number of risk
factors, many of which are beyond our control and effects of which can be difficult to Any forward-looking statements contained in this document represent the views of
predict, could cause our actual results to differ materially from the expectations, targets, management only as of the date hereof and are presented for the purpose of assisting
estimates or intentions expressed in such forward-looking statements. the Bank’s shareholders and analysts in understanding the Bank’s financial position,
objectives and priorities, and anticipated financial performance as at and for the periods
The future outcomes that relate to forward-looking statements may be influenced by
ended on the dates presented, and may not be appropriate for other purposes. Except
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behalf.
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interest rate and liquidity requirements and guidance, and the effect of such changes on section of the SEC’s website at www.sec.gov.
funding costs; changes to our credit ratings; operational and infrastructure risks;
reputational risks; the accuracy and completeness of information the Bank receives on
customers and counterparties; the timely development and introduction of new products
and services; our ability to execute our strategic plans, including the successful
completion of acquisitions and dispositions, including obtaining regulatory approvals;
critical accounting estimates and the effect of changes to accounting standards, rules
and interpretations on these estimates; global capital markets activity; the Bank’s ability
to attract, develop and retain key executives; the evolution of various types of fraud or
other criminal behaviour to which the Bank is exposed; disruptions in or attacks
2
TABLE OF CONTENTS
Scotiabank Overview 4
• Canada’s International Bank 5
• Well Diversified and Profitable Business 6
• Increased Scale, Improving Focus 7
• Track Record of Earnings & Dividend Growth 8
• Why Invest in Scotiabank? 9
• Strong Capital Generation and Position 10
• Progress in Digital Banking 11
• Medium-Term Financial Objectives 12
Business Line and Financial Overview 13
• 2018 Financial Performance 14
• Q4 2018 Financial Performance 15
• Canadian Banking Overview 16
• International Banking Overview 23
• Global Banking and Markets Overview 27
• Credit Performance by Business Lines 29
Treasury and Funding 30
• Funding Strategy 31
• Wholesale Funding Composition 32
• Deposit Overview 33
• Wholesale Funding Utilization 34
• Liquidity Metrics 35
Corporate Social Responsibility 36
Appendix 1: Bail-in and TLAC 38
Appendix 2: Canadian Housing Market 45
Appendix 3: Key Market Profiles 53
Appendix 4: Covered Bonds 65
Contact Information 70
3Scotiabank Overview
Canada’s International Bank
Top 10 Bank in the Americas1,2 Change
Scotiabank3 2018 Y/Y
Americas Revenue $28.8B +6%
2018 Bank of the Year in Latin America and the Caribbean by LatinFinance
7th by market capitalization1 Net Income $9.1B +10%
8th by assets1
Europe Return on Equity 14.9% +20bps
Operating Leverage 3.7% +390bps
Productivity Ratio 51.7% -190bps
Total Assets $998B 9%
Ranking by Market Share4
Canada 3
USMCA U.S.A. Top 10 Foreign Bank
Asia
Mexico 6
Full Service PAC Peru 3
Canada • Mexico Chile 3
Peru • Chile Colombia 5
Colombia • Caribbean
Earnings by Other
Wholesale Operations Geography3,5,6Other
USA • UK • Hong Kong Americas 10%
Singapore • Australia 7%
Ireland • China • Brazil
South Korea • Uruguay PAC 21% 55% Canada
Malaysia • India • Japan
7%
U.S.A
1 Source:Bloomberg; 2 By assets and market capitalization; 3 Figures adjusted for Acquisition-related costs, including Day 1 PCL impact on
acquired performing loans, integration and amortization costs related to current acquisitions and amortization of intangibles related to current and
past acquisitions; 4 Market share in loans as of September 2018 for PACs, as of July 2018 in Canada; 5 For the twelve months ended October 31, Americas (90%)
2018; 6 Excluding Corporate adjustments
5
LEADING BANK IN THE AMERICASWell Diversified and Profitable Business
Diversified by business and by country, creating stability and lowering risk
Earnings by Business1,2,3 Earnings by Country1,2,3
Canadian
Global Wealth
Banking
51% Other International
Management
Other 10%
12% Colombia Americas
Canadian 1% 7%
Global Banking
Banking and P&C Chile
Markets
39% 5%
19%
EARNINGS MIX EARNINGS MIX
Peru
$8.9B 8% $8.9B Canada
55%
Mexico
7%
International U.S.
Banking 7%
30%
Adjusted Return on 23.0%
Equity1 by Division
15.8% 16.0% 14.9%
Canadian Banking International Banking Global Banking and All Bank
Markets
1For the twelve months ended October 31, 2018; 2 Figures adjusted for Acquisition-related costs, including Day 1 PCL impact on acquired performing loans, integration and amortization costs related to
current acquisitions and amortization of intangibles related to current and past acquisitions; 3 Excluding Corporate adjustments
6
GREATER SCALE, GREATER FOCUSIncreasing Scale, Improving Focus1
Gaining scale in key markets to drive earnings growth, improve earnings quality and reduce risk
profile
2013
Gaining Market Share (Total Loans) Increasing Scale with Strategic Acquisitions (2017-2019)
2018
0 2 4 6 8 10 12 14 16 18 20 Increases wealth management assets to $230B.
Canada
Adds 110,000 primary customers.
Canada
Chile Doubles market share. Creates 3rd largest bank.
Mexico
Peru Creates #2 bank in credit cards.
Chile
Colombia Creates market leader in credit cards.
Peru
Dominican
Colombia Doubles customer base. Creates 4th largest bank.
Republic
Improving Earnings Quality Reducing Risk Profile
57 Between 2013 and 2018, exited
countries 38 19 countries with either low
countries
returns, small scale or higher
operational risk:
Turkey • Russia • Haiti • Egypt
Increased wealth AUM by Reduced Reduced Taiwan • UAE • plus 13 others
$78B in 2018. exposure to contribution of 2013 2018
Trade Finance trading to All-Bank
Targeting earnings in Asia by revenue from
contribution to All-Bank • Reduced wholesale funding (% of assets) from 29.6% to 24.2 %
$7B 7.5% to 4.9%
earnings from
• Reduced asset exposure in Asia by 21%
12% to 15%
1 5-year period 2013-2018
7
INCREASING SCALE, IMPROVING FOCUSTrack Record of Earnings and Dividend Growth
Stable and predictable earnings with steady increases in dividends
Earnings per share (C$)1,2 Total shareholder return3
Scotiabank Big 5 peers (ex. Scotiabank)
+9%
CAGR $7.11 13.2%
11.1% 11.8%12.0%
10.4%
$3.05 6.6%
08 09 10 11 12 13 14 15 16 17 18
5 Year 10 Years 20 Years
Dividend per share (C$)
$3.28
+6%
CAGR
$1.92
08 09 10 11 12 13 14 15 16 17 18
1Reflects adoption of IFRS in Fiscal 2011 2 Excludes notable items for years prior to 2016. For 2016 onwards, results adjusted for acquisition-related costs including Day 1 PCL impact on acquired performing loans, integration and
amortization costs related to current acquisitions and amortization of intangibles related to current and past acquisitions. 3 As of October 31, 2018
8
INCREASING SCALE, IMPROVING FOCUSWhy Invest in Scotiabank?
• Diversified by business and geography, providing sustainable
CANADA’S INTERNATIONAL BANK AND A and growing earnings and dividends
TOP 10 BANK IN THE AMERICAS • Strong balance sheet, capital and liquidity ratios
• Attractive dividend yield and long-term shareholder returns
• Leading bank in the Pacific Alliance growth markets of Mexico,
Peru, Chile and Colombia – a region of 230 million people
DIVERSIFIED EXPOSURE TO HIGH o Under-banked market with average age of 29
QUALITY GROWTH MARKETS
• Earnings momentum in personal, commercial and wealth
businesses
• Gaining market share in key markets of Canada and Pacific
Alliance
INCREASING SCALE AND MARKET • Top 3 bank in Canada, Chile and Peru
SHARE IN KEY MARKETS
• Increasing scale in Wealth and Pacific Alliance with $7B of
strategic acquisitions in 2018
• Approx. 80% of earnings from core personal and commercial
banking businesses
IMPROVING QUALITY OF EARNINGS • Exited over 20 non-core countries and businesses since 2014
WHILE REDUCING RISK PROFILE
• Strong Canadian risk management culture - building stronger
capabilities for AML, cyber and reputational risk
• Leading levels of technology investment supports digital banking
strategy. Increasing digital sales adoption with clear targets
ENHANCING COMPETITIVE ADVANTAGE
IN TECHNOLOGY AND TALENT
• Well positioned in the Pacific Alliance to leverage technology
platform versus local and global competitors
• Named to Top 25 ”World’s Best Workplaces” (2018)
9Strong Capital Generation and Position
Capital levels are significantly higher than the minimum regulatory requirements
CET1 Ratio
11.4% +33 bps +14 bps -65 bps 11.2%
11.1%
-10 bps +1 bp +10 bps
Q3/18 Internal Capital RWA Impact Impact of Share issuance Other Q4/18 Impact of Q4/18 Pro-
Generation (ex. FX) Acquisitions / (buybacks) Including FX Announced Forma
(net) Dispositions
Strong Capital Levels
15.3%
14.9% 14.6% 14.5% 14.3%
1.8% 1.8%
1.9% 1.7% 1.8%
1.6% 1.5%
1.5% 1.4% 1.4%
11.5% 11.2% 12.0% 11.4% 11.1%
Q4/17 Q1/18 Q2/18 Q3/18 Q4/18
CET1 Tier 1 Tier 2
10Progress in Digital Banking
Progressing well against 2018 Investor Day digital targets
Digital Retail Sales Digital Adoption In-Branch Financial Transactions
+11% +7% -6%
33
29 26
26 23
22 20
15
11
F2016 F2017 F2018 F2016 F2017 F2018 F2016 F2017 F2018
Goal Goal Goal
>50% >70%Medium-Term Financial Objectives
2018 results consistent with medium-term objectives
2018 FY RESULTS1
METRIC OBJECTIVES
(Y/Y)
ALL BANK
EPS Growth 7%+ +9%
ROE 14%+ 14.9%
Operating Leverage Positive 3.7%
Capital Strong Levels 11.1%
OTHER FINANCIAL
OBJECTIVES
Dividend Payout Ratio 40-50% 47.7%
CANADIAN BANKING
Net Income Growth 7%+ +8%
Productivity RatioBusiness Line and Financial Overview
2018 Financial Performance
Strong adjusted earnings growth with positive operating leverage and productivity gains
$MM, except EPS 2018 Y/Y YEAR-OVER-YEAR HIGHLIGHTS
Reported
Net Income $8,724 +6% • Adjusted Net Income up 10%3
Diluted EPS $6.82 +5%
Revenue $28,775 +6% • Revenue up 6%
Expenses $15,058 +3% o Net interest income up 8%
Productivity Ratio 52.3% (160bps) o Non-interest income up 4%
Core Banking Margin 2.46% -
PCL Ratio1, 2 48bps +3bps • Expense growth of 2%3
PCL Ratio on Impaired Loans1, 2 43bps (2bps)
Adjusted3 • Productivity ratio improved 190 bps3
Net Income $9,144 +10%
Diluted EPS $7.11 +9% • Full year operating leverage of +3.7%3
Expenses
Productivity Ratio
$14,871
51.7%
+2%
(190bps)
• Improved PCL ratio on impaired loans1, 2
PCL Ratio1, 2 41bps (4bps)
ADJUSTED NET INCOME3 BY BUSINESS SEGMENT ($MM)
+8%
Y/Y +16%
Y/Y -3%
Y/Y
4,090 4,416
2,424 2,819
1,818 1,758
Canadian Banking International Banking Global Banking and
Markets
2017 2018
1 2018 amounts are based on IFRS 9. Prior period amounts were based on IAS 39
2 Provision for credit losses on certain assets – loans, acceptances and off-balance sheet exposures
3 Adjusted for Acquisition-related costs, including integration and amortization costs related to current acquisitions, amortization of intangibles related to current and past acquisitions
and the Day 1 PCL impact on acquired performing loans in Q3/18
14Q4 2018 Financial Performance
Strong revenue growth and higher NIM
$MM, except EPS Q4/18 Y/Y Q/Q
Reported YEAR-OVER-YEAR HIGHLIGHTS
Net Income $2,271 +10% +17%
Diluted EPS $1.71 +4% +10% • Adjusted Net Income up 13%3
Revenue $7,448 +9% +4% • Revenue up 9%
Expenses $4,064 +11% +8%
Productivity Ratio 54.6% +80bps +210bps o Net interest income up 10%
Core Banking Margin 2.47% +3bps +1bp o Non-interest income up 8%
PCL Ratio1, 2 39bps (3bps) (30bps)
• Expenses up 9%
3
PCL Ratio on Impaired Loans1, 2 42bps - +1bp
Adjusted3 • Productivity ratio improved 40 bps3
Net Income $2,345 +13% +4%
Diluted EPS $1.77 +7% +1%
• Flat PCL ratio1, 2 on impaired loans
Expenses $3,962 +9% +6%
Productivity Ratio 53.2% (40bps) +140bps
PCL Ratio1, 2 39bps (3bps) (1bp)
DIVIDENDS PER COMMON SHARE
0.03 0.03
0.79 0.79 0.82 0.82 0.85
Q4/17 Q1/18 Q2/18 Q3/18 Q4/18
Announced Dividend Increase
1 2018 amounts are based on IFRS 9. Prior period amounts were based on IAS 39
2 Provision for credit losses on certain assets – loans, acceptances and off-balance sheet exposures
3 Adjusted for Acquisition-related costs, including integration and amortization costs related to current acquisitions, amortization of intangibles related to current and past acquisitions
and the Day 1 PCL impact on acquired performing loans in Q3/18
15Canadian Banking Overview
A leader in personal & commercial banking, wealth and insurance in Canada
• Canadian Banking provides a full suite of financial advice and banking
solutions, supported by an excellent customer experience¸ to Retail, Small
BUSINESS OVERVIEW Business, Commercial Banking, and Wealth Management customers
• It serves customers through its network of branches ABMs, as well as internet,
mobile and telephone banking and specialized sales teams
• Customer focus: Deliver a leading customer experience and deepen
relationships with customers across our businesses and channels
• Productivity: Reduce structural costs while driving tangible revenue initiatives in
order to build the capacity to invest in our businesses and technology
• Digital transformation: Leverage digital as the foundation of all our activities to
2019 PRIORITIES improve our operations, enhance the client experience and drive digital adoption
• Business mix alignment: Optimize our business mix by growing higher margin
assets, building core deposits and expanding fee based income
• Leadership: Grow and diversify talent and engage employees through a
performance-oriented culture
• Canadian Banking’s growth in 2019: Expected to be driven in part by a
favourable economic outlook and rising interest rate environment in Canada
• Assets are projected to grow across retail and business banking products;
Deposits are also expected to grow across retail chequing and savings, and
STRATEGIC OUTLOOK business banking
• Margins are expected to strengthen during 2019 and non-interest revenues are
expected to grow underpinned by our wealth acquisitions
• Key priorities for 2019: Integrating MD Financial and Jarislowsky Fraser, and
driving operational improvements
16Q4 2018 Canadian Banking Financial Performance
Solid asset and deposit growth, margin expansion and positive operating leverage 4
1
FINANCIAL PERFORMANCE AND METRICS ($MM)
Q4/18 Y/Y Q/Q
YEAR-OVER-YEAR HIGHLIGHTS
Reported
Revenue $3,443 +5% +2%
• Adjusted Net Income up 7%4
o Asset and deposit growth, margin expansion
Expenses $1,747 +7% +5%
PCLs $198 (9%) +9% • Revenue up 5%
Net Income $1,115 +4% (1%) o Net interest income up 6%
Productivity Ratio 50.7% +80bps +150bps • Loan growth of 5%
Net Interest Margin 2.45% +4bps (1bp) o Business loans up 13%
PCL Ratio2, 3 0.23% (4bps) +2bps
o Residential mortgages up 3%; credit cards up 7%
PCL Ratio on Impaired Loans2, 3 0.22% (5bps) +1bp
Adjusted4 • Deposit growth of 6%
Expenses $1,705 +5% +4% o Personal up 5%; Non-Personal up 7%
Net Income $1,146 +7% - • NIM up 4 bps
Productivity Ratio 49.5% (20bps) +70bps o Rising rate environment and improved business mix
1,4 • Expenses up 5%4
ADJUSTED NET INCOME ($MM) AND NIM (%)
2.46% o Investments in technology and regulatory initiatives
2.45%
2.41% 2.41% 2.43%
o Full-year productivity ratio improvement of 90bps4
• Full-year operating leverage of +1.9%4
1,073 1,107 1,022 1,141 1,146 • PCL ratio improved by 4 bps due to lower
2, 3
retail PCLs
Q4/17 Q1/18 Q2/18 Q3/18 Q4/18
1 Attributableto equity holders of the Bank
2 2018 amounts are based on IFRS 9. Prior period amounts were based on IAS 39
3 Provision for credit losses on certain assets – loans, acceptances and off-balance sheet exposures
4 Adjusted for Acquisition-related costs, including integration and amortization costs related to current acquisitions, and amortization of intangibles related to current and past acquisitions
17Canadian Banking: Revenue and Loan Mix
Strong retail and growing commercial and wealth
57% 60%
Residential
Retail
Mortgage
AVERAGE LOAN
REVENUE MIX1 MIX1
$3.4B $340B
2%
Credit Cards
25%
Wealth 16% 22%
18% Business and Personal
Commercial Government Loans Loan
1 For the three months ended October 31, 2018
18Canadian Banking: Retail Exposures
High quality retail loan portfolio: ~92% secured
• Residential mortgage portfolio is high quality
79%
o 43% insured, and the remaining 57% uninsured has a LTV of 54%1 Real Estate
• Market leader in auto loans Secured Lending
o $37 billion auto loan portfolio with 7 OEM relationships (3 exclusive)
o Prime Auto and Leases (~91%)
o Lending terms have been declining with contractual terms averaging 77
months with effective terms averaging 54 months DOMESTIC
RETAIL LOAN
• Growth opportunity in credit cards BOOK
o $7.3 billion credit card portfolio represents ~3% of domestic retail loan $286.2B
book and 1.3% of the Bank’s total loan book
o Organic growth strategy focused on payments and deepening customer
relationships
o Upside potential from existing customers: ~80% of growth is from existing
customers (penetration rate mid-30s versus peers in the low-40s)
o Strong risk management culture with specialized credit card teams,
customer analytics and collections focus 5% 13%
Unsecured
Automotive
3%
Credit Cards
1 LTV calculated based on the total outstanding balance secured by the property. Property values indexed using Teranet HPI data.
19Canadian Banking: Residential Mortgages
High quality, well managed portfolio
o Residential mortgage portfolio of $213 billion: 43% is insured; LTV is 54% on the uninsured book1
• Mortgage business model is “originate to hold”
• New originations2 had average LTV of 63% in Q4/18
• Majority is freehold properties; condominiums represent approximately 13% of the portfolio
o Scotiabank has three distinct distribution channels: 1. Broker (~55%); 2. Branch (~25%); and 3. Mobile Salesforce (~20%)
o All adjudicated under the same standards
o The mortgage portfolio has good diversification across Canada with approximately half of the portfolio in Ontario
CANADIAN MORTGAGE PORTFOLIO: $213B (SPOT BALANCES AS AT Q4/18, $B)
$107.0 Freehold - $185B Condos - $28B
43%
Insured
$12.2
Total
Portfolio:
$213 billion
$94.8
$38.6
$30.7
$9.2
$3.6
$15.9
$29.4 $27.1 $1.8 $11.4 $9.5
$14.1 $11.2
$0.2
$8.8 $0.7 57%
Uninsured
Ontario BC & Territories Alberta Quebec Atlantic Provinces Manitoba &
Saskatchewan
% of
50% 18% 14% 8% 5% 5%
portfolio
1 LTV calculated based on the total outstanding balance secured by the property. Property values indexed using Teranet HPI data
2 New originations defined as newly originated uninsured residential mortgages and have equity lines of credit, which include mortgages for purchases
refinances with a request for additional funds and transfer from other financial institutions
20Canadian Banking: Residential Mortgages (continued)
High quality portfolio, lower originations in Vancouver and Toronto
NEW ORIGINATIONS: UNINSURED LTV* DISTRIBUTION
Q4/17 Q3/18 Q4/18 Y/Y
Canada
Total Originations ($B) 12.9 11.9 10.5 -19%
GVA
59% Uninsured LTV 64% 63% 63% -1%
GTA
62% GTA
BC &
Territories Total Originations ($B) 3.9 3.6 3.2 -18%
61% Uninsured LTV 63% 62% 62% -1%
Atlantic
Prairies 67%
ON QC Provinces GVA
63% 65% 69% Total Originations ($B) 1.8 1.4 1.1 -39%
Uninsured LTV 61% 60% 59% -2%
*Average LTV ratios for our uninsured residential mortgages originated during the quarter
FICO® DISTRIBUTION – CANADIAN UNINSURED PORTFOLIO
Average FICO® Score
Canada 787
57%
GTA
GVA
790
790
• 788
FICO is a registered trademark of Fair Isaac Corporation
21Tangerine
Canada’s #1 Digital Bank and the official and exclusive Bank to the Toronto Raptors & their fans
#1 ~96% ~97% ~91% Higher Client Growth from Cross-buy
Industry Leading NPS Digital Onboarding Digital Transactions Digital Sales ~50% Clients Own Multiple Products
KEY STRATEGIC FOCUS:
Primary Clients = Stickier Relationships
Simplicity # Primary Clients +23% Y/Y
• Simple market-leading products that appeal to value-conscious
Canadians Strong Client Advocacy
50% New Clients via Referrals
• Deliver a seamless Client Experience through digital innovations
• Great rates, simple products, and no unfair fees
Ignite Growth Strategy. Focus will be on P&L
expansion via client acquisition and growth on
Velocity both sides of the balance sheet:
• Enhanced self-service options, adding speed & agility • Deliver strong NIAT growth and positive operating leverage
• Nimble modern platform supporting rapid development cycles • Deepen Relationships by establishing incremental Primary Banking
• A low cost, scalable, digital approach Customers
• Leverage strategic partnerships to drive growth in the client base
Partnerships and key segments (Quebec and Millennials)
• Accelerating momentum through the Toronto Raptors • Ignite growth in Deposits, Earning Assets, and AUM
• Drive multi-product client relationships
• Deepening client relationships by introducing SCENE Loyalty
• Maintain Industry Leading NPS Position
• Partnership with Scotiabank continues to deepen
• 93% of Tangerine’s clients are linked to competitors: Big 5 (ex-
Scotiabank) and Credit Unions
Modern Platform Speed & Agility Client-Driven Innovation Unique ‘Orange’ Culture Award Winning Approach
Scalable: Rapid Deployments: Incubator: Team Tangerine: Consistently Recognized:
Nimble, low cost systems Agile best practices enable Identify, explore, and pilot new Our unique culture and J.D. Power Customer Satisfaction
provide a holistic client view. quick & efficient new product & technologies and solutions to lean team are an essential seven years in a row, Finovate “Best
feature delivery. meet evolving Client needs. part of how we deliver. in Class” for digital experiences.
22International Banking Overview
Well established and diversified franchise in high quality growth markets
• International Banking operates primarily in Latin America, the Caribbean and Central
BUSINESS OVERVIEW America with a full range of personal and commercial financial services, as well as
wealth products and solutions
• Customer focus: Leverage our investments in our new customer experience system to
keep strengthening our service oriented culture
• Leadership: Continue attracting and developing exceptional and diverse leadership talent
to keep pace with the changing needs of an increasingly competitive global market
2019 PRIORITIES • Structural cost transformation: Prudently continue to deliver cost reductions
• Digital transformation: Continue accelerating our digital transformation to gain scale and
deliver business impact
• Business mix alignment: Continue achieving profitable growth by increasing core
deposits, growing our insurance revenues and integrating strategic acquisitions into our
operations
• Strong risk culture: Improving our risk management practices by strengthening our
leadership team and continued investment in technology
• Pacific Alliance: Good momentum and will continue to leverage its diversified footprint –
STRATEGIC OUTLOOK with particular emphasis on the Pacific Alliance – and focus on successfully integrating
recent acquisitions in Chile, Peru, Colombia and Dominican Republic
• Margins and credit quality are expected to remain stable with the level in Q4/18
• Expense management and delivering positive operating leverage remains a key priority
23Q4 2018 International Banking Financial Performance
Strong performance in the Pacific Alliance supported by acquisitions
1, 2 2
FINANCIAL PERFORMANCE AND METRICS ($MM) YEAR-OVER-YEAR HIGHLIGHTS
Q4/18 Y/Y Q/Q
Reported • Adjusted Net Income up 22%6
Revenue $3,134 +22% +11%
Expenses $1,721 +23% +15% o Strong asset and deposit growth in Pacific Alliance
PCLs $412 +32% (45%) o Includes impact of acquisitions and alignment of
Net Income $712 +18% +36% reporting period
Productivity Ratio
Net Interest Margin
54.9%
4.52%
+50bps +200bps
(15bps) (18bps)
• Revenues up 22%
PCL Ratio 1.05% (9bps) (153bps) o Pacific Alliance up 28%
PCL Ratio on Impaired Loans3, 4 1.20% +6bps (13bps) • Loans up 29%
Adjusted6
Expenses $1,661 +19% +14% o Pacific Alliance loans up 42%
PCLs $412 +32% +14% • NIM down 15 bps
Net Income $746 +22% +6%
Productivity Ratio 53.0% (100bps) +130bps o Mainly driven by the business mix impact of acquisitions
PCL Ratio3, 4, 6 1.05% (9bps) (18bps) • Expenses up 19%6
1,6
ADJUSTED NET INCOME ($MM) AND NIM5 (%) o Business volume growth, inflation and higher technology
4.67% 4.66% 4.74% 4.70% costs
4.52%
o Full year productivity ratio improvement of 150bps6
613 675 683 715 746 • Full-year positive operating leverage of
3.1%6
Q4/17 Q1/18 Q2/18 Q3/18 Q4/18 • PCL ratio3, 4, 6 down 9 bps
1 Attributable to equity holders of the Bank
2 Y/Y and Q/Q growth rates (%) are on a constant dollars basis, while metrics and change in bps are on a reported basis
3 2018 amounts are based on IFRS 9. Prior period amounts were based on IAS 39
4 Provision for credit losses on certain assets – loans, acceptances and off-balance sheet exposures
5 Net Interest Margin is on a reported basis
6 Adjusted for Acquisition-related costs, including integration and amortization costs related to current acquisitions, amortization of intangibles related to current and past acquisitions
and the Day 1 PCL impact on acquired performing loans in Q3/18
24International Banking: Revenue and Loan Mix
Focused on Latin America, with good contribution from the Caribbean and Central America
71%
Latin America
51%
Business and
Government
Loans
AVERAGE LOAN
REVENUE MIX1, 2
MIX1, 2
$2.8B
$144B
6%
Credit Cards
27%
24% Residential
Mortgages
Caribbean &
6% Central America 16%
Asia Personal Loans
1 For the three months ended October 31, 2018
2 On a constant dollar basis
25Scotiabank In The Pacific Alliance Countries
Well positioned to grow now and in the future
Key Highlights of Pacific Alliance countries (PACs)
Population1,2 • 6x Canada’s population; projected growth outpaces Canada, other EM3 and G7 countries; median age4 of 29 vs. 42 in Canada
Government
Presidential Elections • No elections expected until 2021
Financial Stability • All sovereign credit ratings in IG category with central banks targeting inflation since 1999
Economy
GDP1 • Ranks as the 9th largest economy in the world
Exports5 • Manufacturing is the largest source of exports for the PACs at 64%
Trade Partners5 • US, China and Canada are the PACs’ largest trading partners, representing 72% of exports
Business Environment
HDI Score Rank6 • Ranks “High” or “Very High,” comparable to Canada and the U.S.
Banking Penetration1 • Under-banked with average banking penetration at 50% compared to over 90% in Canada and the U.S.
Foreign Direct Investment1 • FDI averaging 3.2% of GDP compared to 1.7% in Canada and the U.S.
PACs
Mexico Peru Chile Colombia (Total11/Average)
Scotiabank Market Share7 7.1% 18.2% 13.8% 6.2% 11.3%
Market Share Ranking7 6th 3rd 3rd 5th 4th
Commercial, Personal Commercial, Credit cards
Strengths Mortgages and Auto Retail and Credit Cards Well positioned
and Credit cards and Mortgages
Average Assets8(C$B) $32.3 $24.0 $32.9 $12.3 $101.5
Revenue8(C$B) $2.2 $2.0 $1.7 $1.3 $7.2
Net Income after NCI8,9(C$B) $0.6 $0.7 $0.4 $0.1 $1.9
ROE8,9 26% 24% 11% 6% 17%
# of Employees8,10 13,204 11,032 9,386 9,658 43,280
1 Source: World Bank 2017
2 Population growth: World Bank DataBank 2017-2022
3 EM countries include: Argentina, Brazil, China, Greece, India, Indonesia, Poland, South Africa, Turkey, and Russia
4 Source: The World Factbook, CIA 2017
5 Source: United Nation Conference on Trade and Development (UNCTAD) 2017; Organization for Economic Co-operation and Development (OECD) 2016
6 Human Development Index. Source: United Nations Development Programme (UNDP) 2017. For more information, please refer to: http://hdr.undp.org/sites/default/files/2018_human_development_statistical_update.pdf
7 Total loans market share as of September 2018
8 As of October 31, 2018 or for the fiscal year 2018
9 Earnings adjusted for acquisition –related costs including the Day 1 PCL on acquired performing loans, integration and amortization costs related to current
acquisitions, and amortization of intangibles related to current and past acquisitions
10Employees are reported on a full-time equivalent basis
11May not add due to rounding
26Global Banking And Markets Overview
Wholesale banking and capital markets business serving global clients
• Full-service wholesale bank in priority markets of Canada, the United States
BUSINESS OVERVIEW and Latin America; also offers a range of products and services in select markets
in Europe and Asia-Pacific
• Strategic Approach to Lending: Scotiabank GBM is focused on up-tiering
corporate relationships and increasing our lending penetration where we have
greater opportunities to win ancillary business
• Strengthening Investment Banking: Scotiabank GBM will continue its multi-
2019 PRIORITIES year buildout to expand regional expertise for investment banking and equity
capital markets to focus on local and cross-border M&A and advisory deals
• Deeper penetration of Pacific Alliance: Scotiabank GBM will meaningfully
invest in the Pacific Alliance countries to become a true market leader in local and
cross border banking and capital markets capabilities
• By executing its client-focused strategy, leveraging the Bank’s unique footprint,
and having strong alignment across its global operations, Global Banking and
Markets is projected to grow in-line with the Bank’s overall growth profile
STRATEGIC OUTLOOK
• Global Banking and Markets expects to deliver continued strong growth in
deposits, improved corporate lending and investment banking results to absorb
required regulatory and technology investments
27Q4 2018 Global Banking and Markets Financial Performance
Solid loan growth, strong credit quality and lower productivity ratio
1
FINANCIAL PERFORMANCE AND METRICS ($MM) YEAR-OVER-YEAR HIGHLIGHTS
Q4/18 Y/Y Q/Q
Revenue $1,073 (1%) (3%)
• Reported Net Income up 6%
Expenses $553 (3%) +2% • Loans up 7%
o U.S. loans up 13%
PCLs ($20) N/A N/A
Net Income $416 +6% (6%) • NIM down 16 bps
Productivity Ratio 51.5% (80bps) +260bps o Mainly driven by lower deposit and lending margins
Net Interest Margin 1.72% (16bps) (10bps) • Expenses down 3%
PCL Ratio2, 3 (0.09%) (13bps) (4bps) • Productivity ratio improved 80 bps
PCL Ratio on Impaired Loans2, 3 (0.07%) (11bps) (1bp)
• PCL ratio2, 3 improved by 13 bps
1
o Impaired loan provision reversals in Europe
NET INCOME AND ROE
16.9%
16.2% 15.6% 15.3%
14.9%
447 441
454 416
391
Q4/17 Q1/18 Q2/18 Q3/18 Q4/18
1 Attributable to equity holders of the Bank
2 2018 amounts are based on IFRS 9. Prior period amounts were based on IAS 39
3 Provision for credit losses on certain assets – loans, acceptances and off-balance sheet exposures
28Credit Performance by Business Lines
Stable all-bank PCL ratios on impaired loans
IAS 39 IFRS 9
Q4/17 Q1/18 Q2/18 Q3/18 Q4/18
(As a % of PCLs on PCLs on PCLs on PCLs on Total PCLs on
Total Total Total
Average Net Loans & Impaired Impaired Impaired Impaired PCLs Impaired
Acceptance) Loans Loans
PCLs PCLs PCLs
Loans Loans (adj) Loans
Canadian Banking
Retail 0.30 0.29 0.28 0.28 0.28 0.25 0.24 0.25 0.25
Commercial 0.07 0.11 0.08 0.09 0.09 (0.04) 0.06 0.06 0.15
Total 0.27 0.27 0.25 0.25 0.25 0.21 0.21 0.22 0.23
Total – Excluding Credit Mark
0.28 N/A N/A N/A N/A N/A N/A N/A N/A
Benefits
International Banking
Retail 2.00 2.28 2.39 2.26 2.16 2.36 2.254 2.38 2.21
Commercial 0.32 0.28 0.201 0.55 0.341 0.38 0.311, 4 0.07 (0.06)
Total 1.14 1.252 1.261, 2 1.382 1.221, 2 1.33 1.234 1.20 1.05
Total – Excluding Credit Mark
1.34 N/A N/A N/A N/A N/A N/A N/A N/A
Benefits
Global Banking and Markets 0.04 (0.01) (0.04) 0.02 (0.05) (0.06) (0.05) (0.07) (0.09)
All Bank 0.42 0.43 0.42 0.46 0.42 0.41 0.40 0.42 0.39
1Excludes provision for credit losses on debt securities and deposit with banks
2 Not comparable to prior periods, which were net of acquisition benefits
3 On an reported basis; includes impact of Day 1 PCLs from acquisitions
4 On an adjusted basis; adjusted for Day 1 PCLs from acquisitions
29Treasury and Funding
Funding Strategy
Flexible, well-balanced and diversified funding sources
Funding Strategy • SHORT-TERM FUNDING
o USD 25 billion Bank CP program
o USD 3 billion Subsidiary CP program
• Build customer deposits in all of our key markets o CD Programs (Yankee/USD, EUR, GBP, AUD, HKD)
• Continue to manage wholesale funding (WSF) • TERM FUNDING & CAPITAL
and focus on longer term funding
Canadian Dollar
o Endeavouring to fund asset growth through deposits
o CAD 36 billion global registered covered bond program
• Achieve appropriate balance between cost and (uninsured Canadian mortgages)
stability of funding o Canada Mortgage Bonds and Mortgage Back Securities
o CAD 15 billion debt & equity shelf
(senior/sub debt, prefs, common shares)
o Maintain pricing relative to peers
o CAD 15 billion START ABS program (indirect auto loans)
o
• Diversify funding by type, currency, program, CAD 7 billion Halifax ABS shelf (unsecured lines of credit)
o CAD 6 billion Principal at Risk (PAR) Note shelf
tenor and markets
o CAD 5 billion Trillium ABS shelf (credit cards)
• Pre-fund at least one quarter ahead, market Foreign Currency
permitting
o USD 20 billion debt & equity shelf
• Centralized funding strategy and associated risk (senior/sub debt, prefs, common shares)
management o USD 20 billion EMTN shelf
o AUD 8 billion Australian MTN program
o USD 7.5 billion Singapore MTN program
31Wholesale Funding Composition
Wholesale funding diversity by instrument and maturity1,6,7
0%
Bail-inable Notes MATURITY TABLE (EX-SUB DEBT)
36% (CANADIAN DOLLAR EQUIVALENT, $B)
Senior Notes
2%
Asset-Backed $25
Securities $24
$22
$6
13%
Covered Bonds
$1
$4 $8 $19
Asset-Backed $4 $16
Commercial Paper3 $3
$233B $1 $1 $2
3% $13
10%
Mortgage $18
$5
Securitization4 $15 $14 $15 $14
31% 3% $8
Bearer Deposit Notes,
Commercial Paper &
Short-Term Certificate
2%
Deposits from Banks2
Subordinated Debt5
< 1 Year 2 Years 3 Years 4 Years 5 Years 5 Years
of Deposits >
Senior Debt ABS Covered Bonds
1 Excludes repo transactions and bankers acceptances, which are disclosed in the contractual maturities table in the MD&A of the Interim Consolidated Financial Statements. Amounts are based on remaining term to maturity.
2 Only includes commercial bank deposits raised by Group Treasury.
3 Excludes asset-backed commercial paper (ABCP) issued by certain ABCP conduits that are not consolidated for financial reporting purposes.
4 Represents residential mortgages funded through Canadian Federal Government agency sponsored programs. Funding accessed throu gh such programs does not impact the funding capacity of the Bank in its own name.
5 Although subordinated debentures are a component of regulatory capital, they are included in this table in accordance with EDTF recommended disclosures.
6 As per Wholesale Funding Sources Table in MD&A. As of Q4/18
7 May not add to 100% due to rounding
32Deposit Overview
Stable trend in personal & business and government deposits
PERSONAL DEPOSITS PERSONAL DEPOSITS
(SPOT, CANADIAN DOLLAR EQUIVALENT, $B)
$215 • Important for both relationship purposes
$204
and regulatory value
•
$202 $200 $211
$199 Good momentum with 4.1% CAGR over
$193
$190 $199 $198
$201 the last 3 years
$195 $196
3Y CAGR – 4.1%
BUSINESS & GOVERNMENT DEPOSITS1 BUSINESS & GOVERNMENT
(SPOT, CANADIAN DOLLAR EQUIVALENT, $B)
$197
• Gaining share of deposits through
$169 $174
$168 leveraging of relationships
$155 $179
$139
$156
$149
$161
$172 $170 • 12.3% CAGR over the last 3 years
$156
3Y CAGR – 12.3%
• Focusing on operational, regulatory
friendly deposits
1 Calculated as Bus& Gov’t deposits less Wholesale Funding, adjusted for Sub Debt
33Wholesale Funding Utilization
Managing reliance on wholesale funding and growing deposits
WHOLESALE FUNDING / TOTAL ASSETS REDUCING RELIANCE ON
WHOLESALE FUNDING
• Targeting to be in line with peers
o Reduced reliance on wholesale funding over the last two
25.2% 25.1% years
24.5% 24.6%
23.8% 23.7% 23.8%
24.2% o Sustained focus on deposits as an alternate to wholesale
23.4% funding
Q4/16 Q1/17 Q2/17 Q3/17 Q4/17 Q1/18 Q2/18 Q3/18 Q4/18
MONEY MARKET WHOLESALE FUNDING / FOCUS ON TERM FUNDING
TOTAL WHOLESALE FUNDING
• Reduced reliance on money market
funding and termed out funding book
39.9%
38.7% 38.3%
37.7% 37.5% 37.4% 36.8%
35.6% 36.0%
Q4/16 Q1/17 Q2/17 Q3/17 Q4/17 Q1/18 Q2/18 Q3/18 Q4/18
34Liquidity Metrics
Well funded Bank with strong liquidity
• Liquidity Coverage Ratio (LCR)
o Stable and sound management of liquidity
o Net Stable Funding Ratio (NSFR) implementation date is January 2020
132%
128%
127% 127%
126%
125% 125% 125%
124%
Q4/16 Q1/17 Q2/17 Q3/17 Q4/17 Q1/18 Q2/18 Q3/18 Q4/18
• High Quality Liquid Assets (HQLA)
o Efficiently managing LCR and optimizing HQLA
$144
$136 $140 $138
$132
$125 $128 $127
$123
Q4/16 Q1/17 Q2/17 Q3/17 Q4/17 Q1/18 Q2/18 Q3/18 Q4/18
35Corporate Social Responsibility
Corporate Social Responsibility
MEMBERSHIPS &
ASSOCIATIONS
37Appendix 1: Bail-in and TLAC
Overview of Canadian Bail-in Regulations
Introduction Bail-In Basics
• In effect since September 23, 2018 • A statutory conversion power that allows for the
permanent conversion of eligible shares and
• Canada’s resolution authority is Canada liabilities of a non-viable bank into common shares,
Deposit Insurance Corp (CDIC) incremental to OSFI’s conversion of NVCC
• Bail-in framework provides CDIC the • Bail-in conversion would occur in the context of an
statutory power to convert certain open bank; the bank remains open and operating
eligible debt into common equity to and continuing to provide critical services to its
recapitalize a non-viable DSIB customers
• Supplements existing NVCC framework • CDIC has flexibility to determine:
o Quantum of conversion – portion of bail-in debt to be converted
and other resolution tools into common shares
o Several tools available including bail-in and o Timing of conversion – if it will take place immediately or over a
restructuring the bank period of time
o Goal to return the bank to viability o Process for converting – if conversion will take place in one or
more steps
• Applies to six Canadian DSIBs, including • CDIC must adhere to certain parameters
Scotiabank o Adequate recapitalization
o Order of conversion
o Equally ranking instruments
o Relative creditor hierarchy
39Overview of Canadian Bail-in Regulations
Scope of Bail-in Debt Bail-in Outcomes
• Scope emphasizes operational feasibility, • Bank stays open and operating
credibility and preserving access to
liquidity in stress
• DSIB is recapitalized with limited or no
taxpayer support and able to re-access
• What’s in scope: markets
o Issued, originated or renegotiated after September 23,
2018
o Long term (original term >400 days) • Recoveries are consistent with relative
o Tradeable and transferrable hierarchy of claims (shared losses)
o Unsecured o Significant dilution of original common shareholders through
conversion of NVCC and Bail-in debt
o New common shares issued to NVCC and Bail-in debt
• What’s not in scope: holders according to their relative rankings
o Deposits
o Most structured notes • No creditor worse off
o Secured liabilities
o Covered bonds
o Derivatives
• Legacy (non-NVCC) instruments are not in
scope but would be subject to other
resolution tools to ensure that senior bail-
in debt holders are better off than holders
of legacy capital instruments
40Bail-in Process
Resolution
Bail-in Conversion
Business Heightened Point of Resolution Stabilization / CDIC
as usual risk non-viability weekend restructuring exits
• Good • Financial difficulties • OSFI declares • CDIC takes • 1-week to 1- • 1 to 5-year
financial the DSIB non- control / year timeframe timeframe
health viable ownership of
• DSIB may the DSIB
implement recovery • Common • Voting rights are
plan actions under • Minister of shares resulting resumed
OSFI oversight Finance has • OSFI triggers from NVCC and
Federal Cabinet NVCC BID conversion
issue orders conversion are issued • “No creditor
• CDIC may monitor authorizing (voting rights worse off”
and undertake CDIC to assume suspended) determination
necessary temporary • Management and payment of
preparatory control or and Board of compensation
activities ownership of the DSIB • Execution of
DSIB and to replaced if restructuring
necessary plan
• DSIB may execute a Bail-in
experience declining conversion
market confidence, • Liquidity
credit rating support if
downgrades and necessary
funding / capital
raising challenges
41Overview of Canadian Bail-in Regulations
Compensation Regime Resolution Tools
• No creditor worse off: Creditors and • CDIC has a number of tools to assist or
shareholders are compensated where they resolve a failing DSIB
have been made worse off than they would
have been in a liquidation 1. Liquidation of the bank and reimbursement of insured
deposits
• Persons who hold the following claims at the 2. Bank is placed under temporary CDIC control to
complete its sale to a willing buyer (forced sale) via one
time of entry into resolution are entitled to of two approaches:
compensation:
o All shares are transferred to CDIC and it becomes
o Shares of the institution
the sole shareholder to facilitate the sale; or
o Subordinated debt vested in CDIC at the time of entry into
resolution o CDIC is appointed receiver to sell all or some of the
o NVCC subordinated debt subsequently converted into assets and liabilities to the buyer
common shares pursuant to contractual terms
o Under both approaches, critical banking operations
o Liabilities subsequently converted into common shares
are maintained
pursuant to Bail-in power
o Any liability of the institution if the institution was wound-up 3. Bank is placed under temporary CDIC control and CDIC
at the end of the resolution process transfers certain functions to a bridge bank which is
o Any liability of the institution that was assumed by a CDIC- temporarily owned by CDIC
owned work-out company or bridge bank which was
subsequently liquidated or wound-up o Meant to bridge the gap from when an institution
fails and when a buyer or private-sector solution can
be found
• Compensation = liquidation value – o Critical banking operations are maintained
resolution value
4. Bail-in regime
• Right to compensation is not transferrable
42TLAC Requirements and Eligibility
Two concurrent minimum TLAC
compliance requirements by Q1/22
21.5% minimum risk-based TLAC ratio
&
6.75% minimum TLAC leverage ratio
TLAC eligibility
Tier 1 and 2 regulatory capital
as per CAR guideline
+
Bail-in debt
Eligibility criteria for bail-in debt to qualify as TLAC
• Subject to permanent conversion into common shares in whole or in part pursuant to CDIC Act
• Directly issued by Canadian parent operating company
• Not secured or covered by a guarantee of the issuer or related party
• Perpetual or have remaining term >365 days
• No acceleration rights outside of bankruptcy, insolvency, wind-up, liquidation or failure to make
principal or interest payments for 30 business days or more
• Callable without OSFI prior approval if, following the transaction, the minimum TLAC requirement
is satisfied
By Q1/22, Scotiabank will exceed the minimum TLAC requirement (plus Domestic Stability Buffer
requirement) based on maintaining current capital levels and refinancing upcoming senior maturities
43Overview of Canadian Bail-in Regulations
NVCC vs. Bail-in Enhanced Disclosures
• NVCC are regulatory capital instruments • Bail-in debt will be subject to robust
other than common shares that are disclosure requirements to promote
converted to CET1 at non-viability transparency, legal certainty and market
discipline
• Authorities would trigger NVCC only
where there was a high level of • Contractual terms must include a clause
confidence that the conversion plus whereby investors expressly submit to the
additional measures would restore the Canadian Bail-in regime notwithstanding any
viability of the bank foreign law to the contrary
• NVCC improves regulatory capital quality, • Disclosures regarding Bail-in power are
not quantity required in offering documents
o Conversion of NVCC increases CET1 but not total
capital – a gap that Bail-in addresses
• DSIBs are not permitted to advertise or
otherwise promote Bail-in debt, including in
• NVCC is a prerequisite to Bail-in its name, to a purchaser in Canada as a
deposit
• Failure to meet these requirements would not
exempt an issuance from being eligible for
Bail-in
44Appendix 2: Canadian Housing Market
Canadian Household Credit Growth Moderating
Public policy changes are having their intended effects
• Total household credit growing 4.4% in nominal terms in 2018, vs 2008 peak of 12% y/y
• Consumer loans excluding mortgages (cards, HELOCs, unsecured lines, auto loans, etc.)
are growing 4.4% in 2018, vs 11% in late-2007
• Mortgage credit growing 4.4% year-to-date, vs 2008 peak of 13%
HOUSEHOLD CREDIT GROWTH CONSUMER LOAN GROWTH RESIDENTIAL MORTGAGE GROWTH
20 20 20
%, 3-month moving average %, 3-month moving average %, 3-month moving average
18 18
16 15 y/y % 16
y/y % change
14 change 14 y/y %
m/m %
change
12 change, 10 12
SA
10 10
8 5 8
6 6
4 0 4 m/m %
m/m % change,
2 change, SA 2 SA
0 -5 0
90 92 94 96 98 00 02 04 06 08 10 12 14 16 18 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18
Sources: Scotiabank Economics, Bank of Canada. Sources: Scotiabank Economics, Bank of Canada. Sources: Scotiabank Economics, Bank of Canada.
46Household Debt: Canada vs. U.S.
Canadian households’ balance sheets compare favourably to those of their southern neighbours
• In comparable terms, Canadian debt-to-income ratio is now 5.5% below the U.S. peak
o In the last 7 years, increases in Canadian debt-to-income ratio have slowed vs. 2002–10
o Calculated on the same terms, Canada’s debt-to-income is currently 164% vs. 134% in the U.S.
• Canadian debt-to-assets ratio remains below U.S.
o U.S. households have incentive to pursue higher asset leverage in light of mortgage interest deductibility
o Debt is a stock concept, to be financed over one’s lifetime. Income is a flow concept measuring
one single year’s earnings. Debt should be compared to lifetime or permanent income, or assets
• Ratio of total household debt to GDP remains lower in Canada than U.S.
o Calculated on a comparable basis, the ratio of household credit market debt is 98.2% in Canada vs.101.3% in the U.S.
Household Credit Market Total Household Liabilities Household Credit Market
Debt to Disposable Income As % of Total Assets Debt to GDP
180 30 130
household credit liabilities 169.1 household debt
% of GDP
as % of disposable income as % of assets
120
160 US with
163.6
110 unincorporated
25 US business debt 102.7
140 Original Canada
100 101.3
133.8 98.2
120 90
20 Canada*
18.0
80
100 75.1
Original
Adjusted Canadian*
Canada 70
US
15 16.7
80 Official Canadian
60
Official US
60 50
90 92 94 96 98 00 02 04 06 08 10 12 14 16 18 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18
10
* Adjusted for US concepts and definitions. 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18 * Adjusted for US concepts and definitions.
Sources: Scotiabank Economics, BEA, Federal Sources: Scotiabank Economics, Federal Sources: Scotiabank Economics, BEA, Federal
Reserve Board, Statistics Canada. Reserve Board, Statistics Canada. Reserve Board, Statistics Canada.
47Canadian Mortgage Market
Less than half of households have a mortgage or a HELOC More than 50% of Households Do Not
Have a Mortgage or HELOC
• Mortgage holders
45 % of households, 2017
40
o Less than 50% of Canadian households have exposure to a mortgage 35 10.6 with HELOC
and/or a HELOC
30
o Negligible number of negative equity mortgages in Canada
25 3.4
o 91% of all homeowners have equity ratios of 25% or higher. Significant price
20
decreases required to reach a negative equity position
15 30.7 32.0
o High share of equity: average equity ratio is 74% (excluding HELOCs)
22.8
10
o Approximately half of first-time home buyers in Canada are able to source
their down payments from their personal savings 5
0
Owned dwelling Owned dwelling Rented
• 2014–17 data show 79% of buyers from that period have w/ mortgage w/o mortgage
Sources: Scotiabank Economics,
25% or more equity Mortgage Professionals Canada.
o Reflects speed of rising house prices, increased down payment High Percentage of Equity
requirements and tightened mortgage rules
(real estate equity as % of real estate assets)
80
• 2014–17 data indicate only 42% of first-time home buyers % Official (excludes HELOCs)
75
had less than 20% down 70 Cda estimate
including HELOCs
65
US estimate
with NFPs
60
excluding
• Efforts to cool the housing market are working, which 55
HELOCs
implies moderating price appreciation 50
45
Official FRB with NFPs
(includes HELOCs)
40
35
90 92 94 96 98 00 02 04 06 08 10 12 14 16
Sources: Scotiabank Economics, OSFI, FCAC,
Statistics Canada, Federal Reserve Board.
48Canadian Housing Fundamentals Remain Sound
Solid indicators on several dimensions
INTERNATIONAL IMMIGRATION TOTAL DEBT-SERVICE RATIO
2018 16
% OF DISPOSABLE INCOME
NUMBER OF IMMIGRANTS
Target = 310K
290 15
TO CANADA, 000S
14 1990–2017
240 average
13
12
190
11
140 10
90 95 00 05 10 15 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18
Sources: Scotiabank Economics, Statistics Canada. Sources: Scotiabank Economics, Statistics Canada. Data through 2018Q2.
RESIDENTIAL UNIT SALES TO NEW LISTINGS RATIO RESIDENTIAL MORTGAGES ARREARS
% OF MORTGAGES IN ARREARS
1.0 6
5
3 MONTHS OR MORE
0.8
Sellers’ Market
4
0.6
RATIO
Balanced Market 3 U.S.
0.4
2
Buyers’ Market
0.2 1 Canada
0.0 0
90 92 94 96 98 00 02 04 06 08 10 12 14 16 18 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18
Sources: Scotiabank Economics, CREA MLS. Data through September 2018. Sources: Scotiabank Economics, CBA, MBA. Data through 2018Q3 (US) and June 2018
(Canada).
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