Ratings agency Moody's warned about Scotiabank's credit worthiness on Monday, saying the bank's recent push to issue more credit cards and auto loans could lead to more defaults down the line.
Moody's Investors Service downgraded various debt scores for the Bank of Nova Scotia by a notch on Monday, citing recent moves by the bank to improve its profitability.
"Over the last two years, in accordance with its strategic initiatives, BNS has accelerated the growth in its credit card and auto finance portfolios — both of which are particularly prone to deterioration during an economic downturn and exhibit higher defaults and loss severities than mortgage portfolios," Moody's analyst David Beattie said.
Moody's also cited the bank's aggressive push towards international expansion as increasing its risk profile.
The ratings agency had previously warned in November that it was potentially reviewing Scotiabank's debt rating.
Despite the downgrade, Scotiabank's debt rating is still rock solid, near the top of the Big Six banks as a whole, who are collectively given credit ratings generally more favourable than almost any other company in Canada.
But the incremental downgrade to Scotiabank's credit rating could marginally increase the bank's cost of borrowing, as the company is perceived to be a slightly worse credit risk than before.
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