Bank of Nova Scotia missed earnings estimates as the company failed to capture the benefit of rising interest rates.

Net interest margin — the difference between what the bank earns from loans and what it pays depositors —contracted to 2.11 per cent in the three months through January, down from 2.18 per cent in previous quarter. Overall profit in the fiscal first quarter trailed analysts’ estimates.

Scotiabank’s international division — centered on Chile, Colombia, Mexico and Peru — is unique among Canada’s North America-focused banks, and its presence has weighed on the lender’s shares in recent years. Chief Executive Officer Scott Thomson, who took over on Feb. 1, has said that the returns on the capital Scotiabank deployed into international markets in the past decade “have not been commensurate with the risk,” leading to speculation that he may consider alternatives for parts of the business.

The unit’s net interest margin contracted to 4 per cent from 4.08 per cent in the fiscal fourth quarter. 

The first-quarter results reflect “the continued relative pressure on our profitability given our funding profile,” Thomson said in a statement Tuesday. “As we look ahead, our efforts on culture, capital-allocation discipline and operational excellence will drive a renewed strategic agenda focused on delivering value for our stakeholders.”

Scotiabank has risen 7.8 per cent this year, compared with a 7.3 per cent advance for the S&P/TSX Commercial Banks index.

Also in the release:

• Net income plunged 35 per cent to $1.77 billion (US$1.3 billion), or $1.36 a share.
• Excluding some items, profit was $1.85 a share. Analysts estimated $2.02, on average.
• The bank set aside $638 million in provisions for credit losses. Analysts projected $626.3 million.