* Q2 EPS C$1.02 vs C$0.81 yr-ago
* Beats expectations for C$0.93 EPS
* Provisions for credit losses C$338 mln to C$489 mln
* Shares up 3.3 percent (Adds analyst comments, share price, details)
By Andrea Hopkins
TORONTO, June 1 (Reuters) - Bank of Nova Scotia (BNS.TO) said on Tuesday quarterly profit rose 26 percent as domestic banking had a record quarter and loan losses fell again, exceeding expectations and sending its shares up 3.5 percent.
The strong profit growth at Canada's third-largest bank capped a mixed earnings season for the country's big lenders, in which credit losses improved but currency woes and weaker trading revenues took the shine off hefty profits.
"Even after taking into account some of the unusual items that provided a lift this quarter, the number was ahead of expectations. Especially when compared against the softer results reported by peers last week, we view the results positively," CIBC World Markets analyst Rob Sedran said in a note to clients.
Toronto-based Scotiabank posted net income of C$1.1 billion ($1.04 billion), or C$1.02 a share, in the three months ended April 30. That compared with C$872 million, or 81 Canadian cents a share, a year earlier.
Analysts, on average, had expected earnings of 93 Canadian cents a share, according to Thomson Reuters I/B/E/S.
Scotiabank is Canada's most international bank with retail or wholesale operations through much of Latin America and the Caribbean, and a growing business in Asia.
The bank said foreign currency headwinds took a bite out of earnings, noting a negative impact of C$112 million in the quarter as the Canadian dollar strengthened. That diminishes foreign profits when they are translated to the Canadian currency.
Domestic banking drove growth in the quarter, with profits up 42 percent from a year earlier as non-interest income rose more than expected. International banking income fell 15 percent, while income at wholesale bank arm Scotia Capital rose 19 percent.
While Scotiabank's shares rose 3.3 percent to C$49.82 on Tuesday morning on the Toronto Stock Exchange, near their 52-week high of C$52.89, some analysts said the earnings beat was not quite as impressive as rival Bank of Montreal's (BMO.TO), which kicked off the reporting season a week ago.
"While we believe that the results will likely be well received, particularly against some of the negative surprises reported by its peers, the relative low quality earnings, sequential provision increases in Canadian banking and margin compression in international banking should not generate as much excitement as BMO's ... earnings," Barclays Capital analyst John Aiken wrote.
BMO and Scotiabank exceeded expectations in the quarter, while cross-town rivals Royal Bank of Canada (RY.TO), Toronto-Dominion Bank (TD.TO), and Canadian Imperial Bank of Commerce (CM.TO) missed analysts' targets in the quarter.
Scotiabank's Tier 1 capital was 11.2 percent, unchanged from the first quarter. That's at the low end of Canadian peers but well above most global rivals.
Provisions for credit losses fell to C$338 million from C$489 million a year earlier and C$371 million in the first quarter, suggesting the bank has weathered the worst of loan losses from the recession, when consumers and businesses struggled to repay debt.
"Our credit portfolios continue to improve, as evidenced by lower provisions for credit losses this quarter. Furthermore, we have little or no exposure to troubled European sovereign debt," Chief Executive Rick Waugh said in a statement.
As expected, the dividend was unchanged at 49 Canadian cents per common share.
In April, Scotiabank announced the FDIC-assisted acquisition of R-G Premier Bank in Puerto Rico, which was not material to current earnings.
The bank said the acquisition boosted total gross impaired loans by C$1.4 billion from the prior quarter to C$5.3 billion. Excluding the deal, impaired loans declined by C$232 million from the first quarter.
Scotiabank also said it had no sovereign risk exposure to Greece, Portugal or Italy, with negligible exposure to European sovereign debt as a whole.
$1=$1.05 Canadian Reporting by Andrea Hopkins; editing by Rob Wilson