Bank of Nova Scotia (NYSE:BNS)(TSE:BNS) is one of the big six Canadian banks and has significant international exposure. Despite poor macro conditions in Canada, I’m neutral on Bank of Nova Scotia because of its exposure to Latin America and potential to improve its profitability in the long run. With high balance sheet leverage and stretched debt-service ratios (DSR) in Canada, I think there are risks and opportunities for BNS.
Canadian Bank Earnings May be Overstated
I have been bearish on Canadian banks for some time now. While much of the world has been deleveraging since 2008, Canadians haven’t been part of that majority. As Canada’s historically high debt levels collide with high interest rates, I believe the country could face a significant 2008-style deleveraging. This means Canadian banks may face substantial increases in their provisions for credit losses.
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