The Bank of Nova Scotia missed analysts’ expectations for its fourth-quarter earnings as it set aside more money for potentially bad loans, and while the overall sentiment from investors is negative, experts say the bank is taking necessary steps for future performance. 

Scotiabank set aside $1.26 billion this quarter for bad loans, a large jump from the $870 million analysts had forecasted. It also took a financial hit from restructuring costs and a write down of an investment in a Chinese bank. 

The weakness is stunning, though it is perhaps a necessary acknowledgement of issues that need to be tackled, said Greg Taylor, chief investment officer at Purpose Investments.

“The first step to solve the problem is to admit that you have one, so that’s maybe a good thing,” Taylor told BNN Bloomberg in a Monday interview. 

Taylor explained that over a decade ago, Scotiabank was referred to on the street as “the bank of no surprises,” but this has changed over the years as the stock has underperformed.

The bank will have to show investors than in addition to its dividend yield, it can also demonstrate some growth, Taylor said. 

OUTLOOK FOR THE SETCOR

With the rest of the big six banks set to report in the coming days, Taylor said he suspects provisions for credit losses will rise at other Canadian banks as well this quarter, given Canada’s weakened economic environment. 

"There’s going to be a lot of people questioning whether the rest of the banks have to follow this,” he said. “Those that don’t, people are going to be skeptical about their numbers.” 

While concerns over loan loss provisions are top of mind for those closely watching bank earnings, another expert said he views the move as a way to set the stage for next year. 

Rob Wessel, managing partner at Hamilton ETFs, told BNN Bloomberg that the Scotiabank’s fourth-quarter results are not as bad as they look. 

"Q4 might be a classic clean up quarter,” he said in a Tuesday interview. 

He said the provisions for credit losses, asset write downs and amortization write downs are “a textbook clean-up.” 

Still, he noted that $400 million in credit loss provisions was a gigantic figure. 

“The sheer quantum of the increase, $400 million focused mostly on Canadian retail, would certainly lead you to believe that there is an element of trying to get as many problems behind them as possible,” he said.