Bank of Nova Scotia’s SWOT analysis: stock turnaround efforts show promise

The Bank of Nova Scotia (NYSE:BNS), also known as Scotiabank (TSX:BNS), has been navigating a challenging financial landscape while implementing strategic initiatives to drive growth and improve profitability. With a market capitalization of $67.5 billion, BNS maintains a "Fair" overall financial health score according to InvestingPro analysis, reflecting its position as Canada’s third-largest bank. While focusing on consolidating its international operations and strengthening its core business segments, the bank has demonstrated its staying power as a prominent player in the banking industry. This analysis examines the bank’s recent performance, strategic direction, and future prospects.

Financial Performance

In the second quarter of 2025, BNS reported mixed results that aligned with overall market expectations. The bank’s revenues exceeded projections, primarily driven by better-than-anticipated net interest income due to net interest margin expansion. However, these positive factors were offset by higher-than-expected provisions for credit losses (PCLs) and increased expenses.

The bank’s stock has shown resilience, with a notable increase of approximately 23.1% over the past year. Despite this positive trend, BNS is currently trading at a relatively low valuation of 9.6x based on the 2026 estimated earnings per share (EPS).

Looking ahead, BNS anticipates its EPS for 2025 to increase by 5-7%, demonstrating confidence in its ability to generate growth despite ongoing economic uncertainties. Analysts project that the bank’s revenue per share growth will be in the mid- to high-single digits, contributing to the expected earnings increase.

Strategic Initiatives

Under the leadership of CEO Scott Thomson, who took the helm in February 2023, BNS has been implementing a comprehensive turnaround strategy. Key initiatives include revamping the leadership team with external hires, focusing on franchise profitability, and recalibrating capital deployment towards Canada and the United States. Recent InvestingPro data shows the bank maintaining a return on equity of 7% and generating substantial levered free cash flow of over $9 billion in the last twelve months, though seven analysts have recently revised their earnings expectations downward for the upcoming period.

These efforts are expected to yield significant improvements in the bank’s return on equity (ROE). Analysts project that BNS could see an ROE improvement of approximately 300 basis points by 2027, potentially driving stock outperformance in the coming years.

International Operations

Scotiabank’s international presence, particularly in Latin America, has long been a distinguishing factor among Canadian banks. The bank has been consolidating its operations to focus more on countries like Peru, Mexico, Chile, and Colombia, while reducing its footprint in Asia and the Caribbean.

This strategic realignment aims to optimize the bank’s international portfolio and concentrate resources on markets with the highest growth potential. However, analysts note that there are still challenges in the International Banking segment that need to be addressed for BNS to realize its full potential in these markets.

Credit Quality and Risk Management

Credit quality remains a key focus for BNS, especially in light of ongoing economic uncertainties. In recent quarters, the bank has reported stable credit quality metrics, with lower gross impaired loans (GILs) and net charge-offs (NCOs). However, the bank has also recorded higher year-over-year PCLs, indicating a cautious outlook for the remainder of the year.

BNS anticipates maintaining stable PCLs, with analysts projecting a variance of +/-2 basis points from the previous year or quarter. This conservative approach to risk management reflects the bank’s efforts to balance growth with prudent lending practices in an uncertain economic environment.

Capital Management and Dividends

The bank’s capital position remains strong, with its Common Equity Tier 1 (CET1) ratio comfortably above the 11.5% regulatory minimum. This robust capital base provides BNS with flexibility to pursue growth opportunities and manage potential economic headwinds.

In a positive development for shareholders, BNS recently announced a dividend increase of approximately 4% during its annual review cycle. Additionally, the bank has initiated a new Normal Course Issuer Bid (NCIB) for 20 million shares, representing 1.5% of its outstanding shares. These actions demonstrate the bank’s commitment to returning value to shareholders while maintaining a strong capital position.

Future Outlook

As BNS continues to execute its turnaround strategy, analysts are closely monitoring several key areas for improvement. The bank aims to achieve more balanced growth across loans, deposits, and revenues in both its Canadian and International segments. Success in these areas could lead to a more positive outlook from analysts and potentially drive stock performance.

In the mortgage market, BNS has seen accelerating balance growth, posting positive growth for three consecutive quarters after previous declines. The bank experienced its highest growth since the first quarter of 2023 at +5% year-over-year. Analysts expect BNS, along with its peers, to experience around 5% growth in mortgages in 2025, although there are potential downside risks due to economic factors.

Looking further ahead, financial projections indicate steady growth in net interest income, rising from C$18,262 million in 2023 to an estimated C$22,449 million in 2026. However, operating expenses are also expected to rise modestly over the same period, highlighting the need for continued efficiency improvements.

Bear Case

How might economic uncertainties impact BNS’s credit quality?

While BNS has maintained stable credit quality metrics in recent quarters, the bank faces potential challenges from ongoing economic uncertainties. The higher year-over-year PCLs reported in recent results suggest a cautious outlook for the remainder of the year. If economic conditions deteriorate, BNS could see an increase in loan defaults and credit losses, particularly in its international markets where economic volatility may be more pronounced.

The bank’s exposure to Latin American markets, while offering growth opportunities, also presents risks related to political and economic instability in these regions. Any significant economic downturn in key markets like Peru, Mexico, Chile, or Colombia could negatively impact BNS’s loan portfolio and profitability.

Can BNS overcome challenges in its Canadian and International Banking segments?

Analysts have expressed concerns about relative weakness in BNS’s Canada Personal & Commercial (P&C) and International Banking sectors. The bank needs to demonstrate more balanced growth across loans, deposits, and revenues in both segments to alleviate these concerns.

In the Canadian market, BNS faces intense competition from other major banks, which could pressure margins and limit growth opportunities. The bank’s ability to differentiate its offerings and capture market share in a saturated banking environment remains a challenge.

Internationally, while BNS has been consolidating its operations to focus on key Latin American markets, it still needs to prove that this strategy will yield the expected returns. The bank must navigate complex regulatory environments, currency fluctuations, and varying economic conditions across its international portfolio to achieve consistent growth and profitability.

Bull Case

How will BNS’s strategic focus on profitable regions drive growth?

BNS’s decision to concentrate its international operations on high-potential markets in Latin America could be a significant driver of future growth. By focusing resources on Peru, Mexico, Chile, and Colombia, the bank can leverage its expertise in these markets to capture a larger share of banking services.

The consolidation of operations is expected to improve efficiency and reduce costs associated with maintaining a presence in less profitable regions. This strategic realignment allows BNS to allocate capital more effectively, potentially leading to higher returns on invested capital and improved overall profitability.

Furthermore, as these Latin American economies continue to develop and their middle classes expand, BNS is well-positioned to benefit from increased demand for banking services, including personal loans, mortgages, and wealth management products.

What impact will the new leadership team have on BNS’s performance?

The appointment of CEO Scott Thomson in February 2023 and the subsequent revamping of the leadership team with external hires have brought fresh perspectives and expertise to BNS. This new leadership is focused on improving franchise profitability and optimizing capital deployment, which could lead to significant improvements in the bank’s performance.

Analysts project that these turnaround efforts could result in an ROE improvement of approximately 300 basis points by 2027. This potential increase in profitability, combined with the strategic focus on high-growth markets, could drive stock outperformance in the coming years.

The new leadership team’s emphasis on operational efficiency and strategic growth initiatives may also lead to improved cost management and more effective resource allocation across the bank’s various business segments. If successful, these efforts could result in stronger financial performance and enhanced shareholder value over the medium to long term.

SWOT Analysis

Strengths:

• Strong capital position with CET1 ratio above regulatory requirements
• Significant international presence, particularly in Latin America
• Diverse revenue streams across personal, commercial, and investment banking services
• Recent stock performance showing resilience and growth

Weaknesses:

• Challenges in Canada P&C and International Banking segments
• Higher than anticipated PCLs indicating cautious credit outlook
• Relatively low current valuation compared to peers

Opportunities:

• Strategic focus on high-growth Latin American markets
• Potential for improved ROE through turnaround initiatives
• Accelerating mortgage balance growth
• New leadership team driving operational improvements

Threats:

• Economic uncertainties potentially impacting credit quality
• Intense competition in the Canadian banking sector
• Political and economic risks in international markets
• Regulatory changes affecting capital requirements and banking operations

Analysts Targets

• BMO Capital Markets (June 2nd, 2025): No specific target mentioned
• RBC Capital Markets (May 28th, 2025): $81.00, "Sector Perform"
• Barclays (LON:BARC) (May 28th, 2025): CAD 81.00, "Equal Weight"
• BofA Global Research (November 19th, 2024): $65.00, "Buy"

This analysis is based on information available up to June 13, 2025, and reflects the most recent data and analyst projections for The Bank of Nova Scotia.

InvestingPro: Smarter Decisions, Better Returns

Gain an edge in your investment decisions with InvestingPro’s in-depth analysis and exclusive insights on BNS. Our Pro platform offers fair value estimates, performance predictions, and risk assessments, along with additional tips and expert analysis. Explore BNS’s full potential at InvestingPro.

Should you invest in BNS right now? Consider this first:

Investing.com’s ProPicks, an AI-driven service trusted by over 130,000 paying members globally, provides easy-to-follow model portfolios designed for wealth accumulation. Curious if BNS is one of these AI-selected gems? Check out our ProPicks platform to find out and take your investment strategy to the next level.

To evaluate BNS further, use InvestingPro’s Fair Value tool for a comprehensive valuation based on various factors. You can also see if BNS appears on our undervalued or overvalued stock lists.

These tools provide a clearer picture of investment opportunities, enabling more informed decisions about where to allocate your funds.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.