By Nichola Saminather
TORONTO (Reuters) -Bank of Nova Scotia (Scotiabank) and Bank of Montreal (BMO) joined their Canadian rivals in beating analysts' expectations for first-quarter profits on Tuesday with both banks flagging margin improvements on the back of expected interest rate hikes.
Scotiabank benefited from improving earnings in its international unit and a recovery in business lending at home, while BMO saw a surge in capital markets profits, with these positives helping offset declines in wealth management earnings.
Scotiabank, Canada's No. 3 lender, expects "significant" interest rate increases in the Pacific Alliance nations that make up its international unit, particularly Mexico and Chile, to continue to lift earnings for the rest of this year, executives said on an analyst call.
The lender already saw net interest margins in its international business, which accounted for 18% of revenues during the quarter, rise seven basis points from the previous quarter.
Margins in Canada are also set to improve in coming quarters, benefiting from higher central bank rates. The Bank of Canada is expected to raise interest rates on Wednesday.
BMO, Canada's fourth-biggest bank, sees net interest margins excluding trading "widen modestly" in the second half of this year, executives said on an analyst call.
Canada's major banks have reported strong results so far, with Royal Bank of Canada, Canadian Imperial Bank of Commerce and National Bank of Canada (OTC:NTIOF) also reporting better-than-expected profits last week.. Toronto-Dominion Bank, the only Big-Six bank left, reports on Thursday.
Scotiabank reported adjusted income per share rose to C$2.15 in the three months ended Jan. 31, compared with C$1.88 a year earlier and analysts' C$2.05 average estimate.
BMO's adjusted earnings per share increased to C$3.89 from C$3.06 a year earlier, beating analysts' C$3.28 per share forecast.
In contrast to rivals including Royal Bank and National Bank, wealth management PTPP earnings fell at both Scotiabank and BMO, with growth in assets offset by higher expenses.
Scotiabank shares rose 1% to C$92.77 in early trading, while BMO climbed 1.55% to C$146.98. The Toronto stock benchmark added 0.4%.
BMO posted a 30% jump in capital markets pre-tax, pre-provision (PTPP) earnings, helped by strong advisory and underwriting revenues. Scotiabank reported more modest 2% growth in its capital markets PTPP earnings, which nevertheless beat expectations.
Scotiabank's expenses remained flat from a year ago, while BMO's increased 7% year-on-year.
($1 = 1.2671 Canadian dollars)