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TEXT-S&P revises Bank of Nova Scotia outlook to negative
July 27, 2012 / 9:24 PM / 5 years ago

TEXT-S&P revises Bank of Nova Scotia outlook to negative

Overview
     -- We have observed trends of rising consumer leverage and elevated 
residential real estate prices in Canada, in conjunction with incremental 
deterioration of the domestic and global economic outlook.
     -- In our view, this poses a risk for Canadian banks given the importance 
of each bank's consumer credit loan portfolio.
     -- We are revising our outlook to negative from stable and affirming our 
'AA-' long-term and 'A-1+' short-term issuer credit ratings on The Bank of 
Nova Scotia. 
     -- The negative outlook reflects that we might lower the ratings on the 
bank if the growing economic imbalances were to lead us to a more negative 
view of the economic and industry environment in which Canadian banks operate.

Rating Action
On July 27, 2012, Standard & Poor's Ratings Services revised its outlook on 
Canadian financial institution The Bank of Nova Scotia (BNS) to negative from 
stable. At the same time, Standard & Poor's affirmed its 'AA-' long-term and 
'A-1+' short-term issuer credit ratings.

Rationale
The outlook revision is linked to our evolving views of economic risk and 
industry risk for banks operating in Canada. A prolonged run-up in housing 
prices and consumer indebtedness in Canada is contributing to growing 
imbalances and Canada's vulnerability to the generally weak global economy, 
applying negative pressure on economic risk for banks. Growing pressure on 
banks' risk appetites and profitability arising from competition for loan and 
deposit market share could also lead to a deterioration in our view of 
industry risk. If current trends continue, we might lower the ratings on BNS 
by one notch, if the growing economic imbalances were to lead us to a more 
negative view of the economic environment in which Canadian banks operate, in 
the absence of offsetting bank-specific considerations (see "Outlooks On Seven 
Canadian Banks Revised To Negative From Stable Due To Economic And Industry 
Risk Trends; All Ratings Affirmed," published July 27, 2012, on RatingsDirect 
on the Global Credit Portal).

In our view, BNS has a strong business position, adequate capital and 
earnings, a strong risk position, average funding, and adequate liquidity, 
reflecting its unchanged stand-alone credit profile (SACP) of 'a+'. The anchor 
rating is 'a-'.

According to our criteria, BNS is a "systemically important" bank. We consider 
that the bank would likely benefit from extraordinary government support in 
times of stress. As such BNS benefits from a one-notch uplift from its 
stand-alone credit profile to reflect government support. 

Outlook
The negative outlook reflects the potential that we might lower the ratings on 
BNS if the growing economic imbalances were to lead us to a more negative view 
of the economic and industry environment in which Canadian banks operate, in 
the absence of offsetting considerations specific to BNS. The outlook also 
reflects our expectation that BNS will continue to generate consistent 
earnings through its premier business franchises in Canada and diversified 
revenue sources, even though our expectations are for moderating operating 
revenue growth due to a slowing Canadian economy. We could lower the ratings 
if the risk-adjusted capital (RAC) ratio falls below 7% for several 
consecutive quarters, losses from trading operations exceed historical losses, 
or net charge-offs consistently become substantially higher than the domestic 
peer average. We could raise the ratings if the RAC ratio is consistently 
above 10%.

Ratings Score Snapshot
Issuer Credit Rating          AA-/Negative/A-1+

SACP                          a+
Anchor                        a-
Business Position             Strong (+1)
Capital and Earnings          Adequate (0)
Risk Position                 Strong (+1)
Funding and Liquidity         Average and Adequate (0)

Support                       1
GRE Support                   0
Group Support                 0
Sovereign Support             1

Additional Factors            0

0 : 0
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