DBRS Confirms Bank of Nova Scotia at R-1 (middle), AA (low)

Dominion Bond Rating Service (“DBRS”) has today confirmed the ratings and trends of Bank of Nova Scotia (“Scotiabank” or the “Bank”) as indicated above. Scotiabank’s ratings continue to be supported by the Bank’s level of diversification with balanced contributions from Domestic Banking, Scotia Capital, and the significant international operations. Recent earnings have been strong in all divisions, with record earnings in 2005 and a solid result in the first quarter of 2006.

Scotiabank’s financial risk profile is one of the strongest of its peer group as evidenced by solid capital ratios, high quality capital, consistently strong internal capital generation, a strong core deposit base, and reasonable market risk exposure levels. Scotiabank also has a competitive advantage as the cost leader among its Canadian banking competitors. DBRS does not anticipate any significant changes in the Bank’s financial risk profile or cost management. Domestic Banking remains the key to stability as both Scotia Capital and International Banking operations can have volatile returns. While International Operations has higher growth potential, these operations expose the Bank to additional economic, currency, and operational risks.

Other challenges for Scotiabank include a higher reliance on net interest income than the Bank’s peers, which is an important consideration, as DBRS expects domestic margin pressure to continue, due to competitive conditions. Scotiabank recently completed banking acquisitions in Peru and El Salvador and has acquired Maple Trust Company and some related assets domestically. While not a large acquisition for the Bank, Maple Trust is one of the largest originators in the Canadian mortgage brokerage business.

Notes:
y – designates hybrid instrument.
n – designates non-cumulative.
Bank of Nova Scotia’s Cumulative Preferred Shares rating is notional; none outstanding.