TORONTO — Moody's has downgraded its ratings for the Bank of Nova Scotia (TSX:BNS) by one notch, noting Scotiabank's increased reliance on generating profits from credit card and auto loans.
The credit-rating agency says the bank's shift away from mortgage loans to higher-yielding categories of consumer credit will likely persist.
"In addition, the bank has made a series of acquisitions away from its strong domestic franchise towards higher-growth but less stable international markets," the Moody's report says.
It adds that Scotiabank's moves "signal a fundamental shift away from the bank's traditionally low risk appetite."
Ratings by Moody's and other agencies are among the factors used to determine what interest rates Scotiabank will need to offer when it sells bonds or other debt securities. The ratings are likely to have little if any effect on the bank's customers.
Moody's said it previously assigned higher ratings for Bank of Nova Scotia and its subsidiaries because of the bank's low tolerance for risk.
"While the bank's strategic actions are intended to enhance current profitability — BNS reports the lowest domestic net interest margin of the six largest Canadian banks — in Moody's view, they increase the prospect of future incremental credit losses."
The agency's ratings for Scotiabank's long-term debt and deposits has been reduced to Aa3 from Aa2 and a variety of other ratings have been adjusted similarly.
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