Bank Of Nova Scotia (BNS) September 2026 Conference Transcript

Good morning. We're going to get started here.

I'm Brian Morton. I cover Canadian and Latin American banks here at Barclays. I'm very pleased to have with us Aris Bogdan-Aris. He's the Group Head of Canadian Banking with Bank of Nova Scotia. Welcome, Aris. Great to be here. Thanks for coming back. Great. Let's start with the macro backdrop. Tariff and trade policy uncertainty is once again kind of clouding the outlook for Canada's economy. How are customers preparing for the potential impact of another round of higher tariffs? And to what extent could the Build Canada initiative help offset these pressures?

Well, before I get to that, I just want to just mention two years ago I was on this stage, and we talked about, early in my tenure, we talked about the plans we had for Canadian banking and at that time I laid out the strategy really about building the foundation and focusing on primacy and 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 and I'm very pleased to be here again and on your question on tariffs. So what are we seeing on tariffs? Tariffs aren't nearly 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 pipeline, 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 are close to them, of course. But 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. So 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 Bank of Nova Scotia is committing $100 billion to the Canadian industry. Can I talk about kind of like the timing of that and thoughts about that and, you know, maybe opportunities where you could not just do lending commitments, but just expanding the relationship with your kind of Canadian domestic partners?

So 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. So we're very confident that this will be a big plus for our bank and a big plus for Canada, and we're going to be right lockstep with that.

Great. And I want to go back to, you know, you talked about we were 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. You know, after some minus compression in 2025, partly due to the PCLs, you know, you've seen some ROE expansion has been stronger so far in 2026. Maybe it kind of talks about where the key drivers are further improvement. How are you thinking about that timeline to reach the 24%?

So as you saw in the third quarter, the results are 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. And third, bringing in a culture of discipline and consistency. And the R&E 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. And 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 $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 F27. 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 thing because we know that in terms of ROE accretion, fee income is very important. And no surprise, finally, the fourth lever is productivity. And 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'll see RLV not only going up, which you mentioned, NIM expanding five quarters in a row, Oplev improving four quarters in a row, RAM improving 11 points year on year, fee income above 20%, and we're growing non-mortgage lending faster than mortgage of lending for the first time in two years. So all this put together is driving that ROE expansion that you saw in the third quarter and the second quarter, and we'll continue to see going forward.

You mentioned primacy twice now, and that was another important theme that came back from at Investor Day, and you were talking about closing the gaps with peers. You talked about kind of the initiatives. What are you doing to deepen the primary relationships with retail customers, and which initiatives should move the needle from here?

Right. So 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's the first, but I think a good illustration would be in our mortgage business, where historically we've 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've completely pivoted. And for us, the mortgage business now is an anchor to primacy. And what I mean by being an anchor to primacy is today, 95% of the inflows of our mortgage business come with a mortgage plus bundle, three plus products. And this is very different from how we operated before. So 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. And that has driven 10% additional day-to-day volume coming through the mortgage door, 10% more credit card volume coming through that door. And interestingly enough, our mortgage clients are more affluent than our general client base. So 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. So this is now how we're using our mortgage business to drive primacy. And today only 13% of our mortgage balances are single product customers. That's very different from years ago. And 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's view in terms of our incentives, in terms of the way we measure people. All this is helping drive a higher NIM and higher revenue.

Excellent. And then, you know, I want to touch on loan growth. Lone growth has been healthy year to date, particularly in cards and mortgages. On cards, how are you driving greater usage among retail customers? And alternatively, is this the right point in the cycle to lean into growth with unemployment still elevated?

I think we, just talking about the cycle, early in the cycle 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. But 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. But we saw a huge opportunity in our car business to rebuild the car 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 car 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. And 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 ScenePlus, our 15 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. But 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.

And then maybe touch to our mortgages. Are you still adding mortgage assets at attractive margins in this rate?

I think that's what 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 and 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. But 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 IRAs and our mortgage business have improved, our margins have improved, but we're going to stay disciplined and focus on the renewals that we see. The $75 billion to $80 billion in mortgage renewals are coming up in F27. There's been a substantial number of renewals, I think $35 billion in F26, 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. And that's what's important, 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 to, again, our mortgage business.

Turning over to the commercial banking side, we kind of touched on this a little bit earlier, but how is the business position to benefit from the Build Canada initiative? And could that translate into an acceleration in the 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. 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 opportunities, and also in the small business segment. So 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. and 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 where the clients need us so 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. And I think this will be a motor for us for growth, not only the mid-market but also the small business with just going lending 10% year on year, which we don't talk about much. But 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'm curious about, too, is earlier, I guess in the summer, where we saw the OSFI lowered the domestic stability buffer at 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 lending relationships?

I mean, for us, we have a strategy. We understand the businesses we're 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 so it's not something now that we have more capital to deploy that we start to loosen or whatever we say discipline now at the margin could it provide some opportunities yes but it doesn't 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.

And then switching from loan growth over to deposit growth, you kind of see deposits have kind of lagged a little bit here. Were there any specific headwinds in this year to deposit growth? And then looking ahead, do you think it can continue to grow deposits in a potentially rising rate environment?

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 has been sizable. More recently, in the third quarter, we saw on the retail side, day-to-day and savings deposits were up 1.2% quarter-on-quarter. That's around double the big six average. So we're happy with that progress, and that progress will continue. What we're 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're 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've added $6 billion in balances in our savings book. Since that time, 70% of that balanced growth is coming from new money, new clients from outside. And after the promotion period, there's a higher level of retention than we've ever experienced with a savings product. Now, that said, the market is very competitive. Why do I say that? You're 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. So this competitive nature in the term market is increasing. But that said, when I look at the entire savings rainbow, including investment funds, deposits, term, day-to-day, we're growing our share, and that's very important. If markets now turn and things start to flow back the other way, we're well-positioned with our product set and our primacy strategy. So that's how I view the deposit market, although I would say one thing. The key to deposits, of course, you compete on price, and it's 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's a much easier way to compete through proper advice for the client in order to maintain those balances. And that's what we're learning over the last few years as we drive this primacy strategy.

Great. One thing I want to ask about, too. 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're implementing across Canadian banking, and how could they affect kind of your financial targets?

So I think it's early in the game in AI, and the organization is at a relatively early stage. But having said that, I think there's a few interesting use cases that we've seen that we've 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. Two, we see a very, very powerful use of AI in preparing our RMs for clients. prospective clients and existing clients a huge time saver that's 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 and 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. Now, going forward, the opportunities as the use cases actually get deployed will be 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'll 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 won't be adding workers at the same rate as you go in your business when you have agentic. So 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've talked about, to drive that positive operating leverage over time and keeping the run cost manageable because I think that's what we've done really well in Scotia. The Oplev has been positive four quarters in a row. So our run costs, as I mentioned, are managed very tightly, and that's the key to generating positive oplev. It's not so much the investments, although they matter, but the run costs and how they're being managed, and we've been doing a great job on that. And agentic and AI will only help further.

Staying on the technology side, let's 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?

I think, 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're roughly at around 18%. And for me, getting that 18% share of revenue through digital to 30% is still the goal we've put in place for our business. And that requires still a lot of work to go. Because when you think about where you make money, there's on the lending side, on the saving side. And how do you get more and more of that through digital channels? That's the next step. We've done a fantastic job of taking traffic outside of the branches where people don't want to go to a branch unless they feel it's worth their while. And for often the case, at least in our bank, people were going to the branch because they couldn't self-serve on mobile. The team has done a fantastic job of putting those capabilities in place. So now the traffic we do see in the branches increasingly is for reasons that clients value financial advice. So going further, we are going to continue to invest in digital and get the number probably up to at least 50% is what I've seen in previous places. But more importantly, it's using digital not only for sales, but actually more process entitlement in terms of first time by getting things through like you could expect. So 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 of income even lower than it is today, roughly 45%.

But also, you cannot just think of digital.

You have to think of your physical channels. And two things that I'm very proud of is how we're increasing the amount of specialists in our 800 branches. So when you look at our branches today and you look at them five years ago, the amount of specialists, whether they're small business specialists, financial advisors, has increased dramatically. But more importantly, we've 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. So here again, going back to productivity, when you're adding more sales force and you're investing in your sales force, you're getting a return in less than 12 months, and that's also helping your oplev going forward. So I'm very pleased with the whole channel mix progress we've been making.

I want to also touch on your significant presence in the digital-only banking through Tangerine. How are you applying that experience across the border 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. And 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. But 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 the Scotiabank going forward to gain share with a lot of different segments that normally wouldn't bank in Scotiabank today. So I'm very excited about Tangerine, and more will be said about it in the coming period.

Okay, maybe a little bit more on the productivity ratio. I'm just talking 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.

So 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. But let's not forget that to get the productivity ratio down, you have to manage your run. And what we've been doing at Scotia, we talked about it earlier, The substitution on the channel makes 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. And 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. So 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. And you can see that having a positive oplev, 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.

And I guess before we open up to the audience, I mean, 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 and you saw it again in the quarter you even saw it in the earlier quarters strong revenue growth actually revenue 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, min expansion, RAM expansion, fee expansion. So 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. And 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's an asset no other bank has in Canada, and we're going to fully maximize the value of that asset over the coming period. And taken all together, I'm confident, notwithstanding some of the challenges we have in the geopolitics, but we manage it. We're disciplined, and I'm confident that I've taken a lot of the variability out of this business through that discipline, building foundational capabilities, domain expertise, and we're going to continue to deliver. That's the message I want to leave people with.

Well, take any questions from the audience, if there are any.

We'll go one up in front. Well, again, it's too, as I mentioned now, up to now we've managed quite well, and tariffs have been, now it's been a year we've been working through. I can't really speculate the impact because we don't know what the government support measures could be. I mean, there's 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're close to our clients. We're obviously cognizant of the sectors. I mentioned trade, I mentioned manufacturing, corporate real estate, ag. So we're also cognizant and stress testing and being very careful in our underwriting when sectors that could be impacted. But at the end of the day, we're managing through it. And as I mentioned, the loan pipelines that we're 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's not holding us back in terms of what we think we can deliver for our bank. Another question up front? I think at this point we're happy with our key bank investment, and it's done what we wanted it to do, and we're pretty happy with the current status quo, so I don't see any change happening.

If there's no more questions, maybe join me in thanking Aris for his presentation and time here today. And then I do mention up next in this room we have Citadel Securities, and other presentations are from PNC Financial, NASDAQ, and European Central Bank. Thank you.