CANADIAN RETAIL AND COMMERCIAL BANKING serves customers in close to four million households and well over 250,000 businesses. They have access to Scotiabank’s services through 1,284 branches across Canada, 2,002 automated banking machines, five offices of Scotia Discount Brokerage, four TeleScotia call centres, 250 personal investment managers, Scotia OnLine PC banking and point-of-sale.

FINANCIAL PERFORMANCE

In 1998, Canadian Retail and Commercial Banking produced net income of $605 million, representing 43% of the Bank’s net income. 1998 net income was 16% higher than in the previous year, arising from a sizeable increase in the domestic franchise partly from the addition of National Trust, a Canadian trust company serving 600,000 households, which the Bank acquired in 1997.

Across the entire business line, revenues rose by 21% to $3.7 billion in 1998. This revenue growth was the result of continuing expansion of the Bank’s retail business. Average residential mortgages grew by 28% and market share rose to 18% largely with the acquisition of National Trust. All of the sales channels contributed to this growth, including the branches as well as the newer mobile mortgage sales managers, mortgage brokerage units and the Bank’s Internet services. Personal loans, adjusted for amounts sold to investors under securitizations, rose by 12%.

Financial results, Canadian Retail and
Commercial Banking

* excludes National Trust

Commercial loans, including those to the vital small and medium-size business sector served through the branch network and by RoyNat, were 18% higher than in 1997. This was accompanied by a very strong increase of 18% in the current account deposits from this customer base. In fact, total current accounts, including those held by corporate customers, have been rising steadily over the past several years, and in 1998 were 50% above the level of three years ago.

Personal deposits grew a sizeable 23% over the year with market share also increasing to over 17%. This arose notwithstanding the movement of some customer deposits to the Bank’s mutual funds, which also rose by 33% during the year.

Fees earned from the Bank’s many services rose 22% in 1998. Mutual funds were strong contributors to this growth, as were deposit and payment services.

Operating expenses were 23% greater than in 1997. Two-thirds of this growth was because of the inclusion of National Trust. Also contributing was additional staffing, particularly in front line customer service positions. In addition, there were higher professional and computer expenses incurred for a number of projects to enhance the sales and service capabilities in the branches.

Provisions for credit losses, at $296 million, were $69 million higher than in 1997. The main area of increase was in the student loan portfolio, with a smaller growth related to commercial lending.

BUSINESS PLANS

In retail banking, the Bank plans to continue to improve the quality and range of services, further distinguishing ourselves as a partner – human, straightforward and knowledgeable – that helps Canadian families manage their financial affairs.

New products, and growing skills in giving advice, are expected to help the Bank increase its business, particularly among home buyers, emerging investors, and savers looking forward to retirement.

The Bank will continue to make customers more aware of our convenient low-cost electronic delivery channels, widen the range of products available through those facilities, and improve service. As one of our initiatives to improve productivity, for example, customers can now arrange mortgage financing through the Bank’s call centres and through the Internet.

New products, more advice, and inexpensive access to services provided by the Bank will also support the Bank’s program to communicate its distinctive attributes to Canadian households – attributes that include a long-standing record of top-quality customer service.

In commercial banking, the Bank is enhancing its delivery of services, to increase efficiency and respond to the changing needs of small and medium-sized businesses.

The automation and centralization of many administrative functions is enabling branch officers all across Canada to devote more effort to building local knowledge and supporting small business.

The Bank is in the process of implementing a highly streamlined application and processing procedure for making loans to small and medium-size business banking customers. This will enable the Bank to respond to customer loan requests within 24 hours.

The Bank will also continue to market alternate delivery programs to its business customers, many of whom have signed up for business banking over the Internet.

With other efficiency initiatives, in particular a major redesign of branch operating systems, the Bank expects to bring down the ratio of expenses to revenues over the next few years. This will help the Bank maintain its productivity leadership in a very competitive marketplace.

OUTLOOK

In 1999, the growth rate of the Canadian economy is expected to moderate compared with the strong performance of the past three years. In spite of this, both the retail and commercial banking areas are planning to achieve business growth, albeit at a slower pace. Expense growth is expected to slow, accompanied by higher savings arising from the ongoing integration of National Trust. As a result of a combination of these factors, earnings should continue to grow in the coming year.