DBRS Confirms Bank of Nova Scotia at AA, R-1 (high); Stable

DBRS has today confirmed the ratings and trends of Bank of Nova Scotia (Scotiabank or the Bank) as indicated below. All trends are Stable.

Scotiabank’s ratings are supported by the Bank’s diversified earnings profile (balanced contributions from Domestic Banking, International Banking and Scotia Capital), a strong cost-control culture and a favourable financial-risk profile.

Over the past 18 months, Scotiabank has continued to execute on its acquisition strategy. Strategic international purchases include Corporación Interfin (parent of Banco Interfin) in Costa Rica, the remaining interest in Banco Sudamericano and Banco Wiese Sudameris in Peru, Citibank’s retail banking business in the Dominican Republic and 24.99% of Thanachart Bank in Thailand. Scotiabank’s objective is to have a minimum 10% market share in countries in which it desires to operate. International operations contributed 30% of earnings in fiscal year 2006, which is balanced relative to the rest of Scotiabank’s operations. With the relative importance of international operations expected to increase due to more positive growth prospects in international operations relative to domestic banking, DBRS believes the risk profile of the Bank will increase in the medium term due to additional economic, currency and operational risks. DBRS considers diversification by country and long-standing experience in lesser-developed markets will help to somewhat temper this risk.

Domestically, the Bank has also been expanding its distribution footprint through organic branch building and the purchases of the mortgage business of Maple Financial Group, including Maple Trust, and the Canadian operations of the National Bank of Greece. DBRS expects the Bank to continue to make market-share gains in select areas. Scotiabank’s domestic-banking franchise remains the key to earnings stability as Scotia Capital can have potentially volatile returns.

Scotiabank has one of the strongest financial-risk profiles among its peer group, which provides the Bank with the flexibility to manage its growth strategy (organically and/or through acquisitions) and the ability to absorb unforeseen shocks. The Bank 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.

In October 2006, DBRS introduced a new global-rating methodology for banks. Scotiabank’s long-term deposits and senior debt rating at AA is composed of an Intrinsic Assessment of AA (low) and a Support Assessment of SA2 (reflecting the expectation of systemic and timely external support by the government of Canada), which resulted in a one-notch increase from the Intrinsic Assessment.

The Bank has four segments: Domestic Banking, International Banking, Scotia Capital and Other, which represent 36%, 30%, 30% and 4% of adjusted net income in 2006, respectively.

Headquartered in Toronto, Canada, the Bank of Nova Scotia has a full-service retail-banking operation and wealth management in Canada, international retail-banking franchises (Mexico, the Caribbean, Central America and South America) and a full-service domestic corporate and investment bank, with global precious-metal capabilities. Scotiabank is the most internationally diversified of Canada's major banks.

Notes:
All figures are in Canadian dollars unless otherwise noted.
DBRS ratings also apply to Scotia Mortgage Corporation, Scotia Mortgage Investment Corporation, Montreal Trust Company of Canada and National Trust Company, which are unconditionally guaranteed by Bank of Nova Scotia.