Bank of Nova Scotia (BNS) 2016 Q3 法說會逐字稿

Welcome to Scotiabank's 2016 third-quarter results presentation.

My name is Jake Lawrence; I'm the Senior Vice President of Investor Relations for the Bank. Presenting to you this morning is: Brian Porter, Scotiabank's President and Chief Executive Officer; Sean McGuckin, our Chief Financial Officer; and Stephen Hart, the Bank's Chief Risk Officer. Following this morning's comments we'll be glad to take your questions. Also in the room with us to join the Q&A session are Scotiabank's business line Group Heads: James O'Sullivan from Canadian Banking; Nacho Deschamps from International Banking; and Dieter Jentsch from Global Banking and Markets.

Before we start the call and on behalf of those speaking today, I'd like to refer you to slide number 2 of our presentation which contains Scotiabank's caution regarding forward-looking statements.

With that, I'll turn the call over to Brian.

Thank you, Jake, and good morning, everyone. I'll start on slide 4. We are pleased to report third-quarter results to our shareholders. For Q3, the Bank delivered a strong quarter of both financial and operating results. The Bank earned almost CAD2 billion, delivering diluted earnings per share of CAD1.54, and a 6% increase from last year.

These strong results were supported by earnings growth across all three of our business lines, each of which I'll touch on briefly. While we are Canada's International Bank, it is important to note that our Canadian Banking business generates more than half the Bank's earnings. The Canadian Banking team, under James O'Sullivan's leadership, has done a very good job continuing to improve the customer experience, working to further optimize the business mix and enhancing productivity.

I'd like to highlight two proof points. To better serve customers, we are developing greater digital capabilities to eliminate pain points and simplify on-boarding experiences for our customers. For example, we are reducing online bank account openings to less than five minutes and in constructing Canadian Banking's balance sheet we are deepening relationships in a thoughtful and risk-sensitive manner.

As proof, we are growing our core deposit and payments businesses which have improved the returns we are able to generate for shareholders. This quarter's financial results provide evidence of Canadian Banking's success.

Turning to International Banking, I am very pleased with the financial and operating momentum we see in the business, particularly in the Pacific Alliance countries of Mexico, Peru, Chile, and Colombia. Over a year ago we indicated that the financial performance of International Banking would improve, and it has. International Banking has earned at least CAD500 million in four consecutive quarters. These strong earnings performances are a combination of excellent volume growth, primarily in the Pacific Alliance where we are gaining profitable market share paired with good operating disciplines.

As proof, International Banking has achieved five consecutive quarters of year-over-year positive operating leverage. And as we indicated in January at our investor event in Mexico City, we remain confident in the medium and long-term growth prospects of the Pacific Alliance.

Overall, our Canadian and International Banking businesses are generating 80% of Scotiabank's earnings, and in recent quarters are producing high single-digit growth. After a few challenging quarters, Global Banking and Markets also had a strong performance. We believe last quarter's earnings troughed for this business.

The stronger performance in Q3 reflects better results across several businesses, as well as lower energy-related losses. On credit, last quarter we indicated that energy-related losses had peaked and that our loss ratio would improve, which was indeed the case this quarter. The strong performances across all three business lines was paired with good expense management. As a result, all bank operating leverage of 3.3% this quarter and is positive year to date.

Our adjusted return on equity in Q3 was strong at 14.8%. Looking at our capital position, the Bank remains well capitalized with a Common Equity Tier 1 ratio of 10.5%. With strong capital, growing businesses and higher earnings, we are well positioned to continue investing in and growing the Bank.

The Bank continues to make investments to grow organically, such as growing our under-indexed businesses, improving digital capabilities and offerings or funding programs to reduce structural costs. And while these investments do not receive the same attention as acquisitions, they provide very attractive returns to our shareholders and ultimately make us a better bank.

Growing earnings and strong capital also support dividend increases. We are pleased to announce a CAD0.02 increase to the quarterly dividend to CAD0.74 per share, a 6% increase from last year.

To recap, we are encouraged with this quarter's results. We have strong performances across all our business lines and the positive operating trends we are experiencing provide us with good momentum as we move into the final quarter of the year.

I will now pass the call over to Sean to review this quarter's performances.

Thanks, Brian. I will begin on slide 6 which shows our key financial performance metrics for the current quarter and comparative periods. As Brian mentioned, Q3 diluted earnings per share was CAD1.54, up 6% year over year. The quarter had strong personal and commercial banking as well as wholesale results.

Provisions for credit losses improved from the peak level reported last quarter and progress on expense management continues to be good. Revenue goals were strong, up 8% from Q3 last year, with solid asset growth in Canadian Banking, International Banking as well as corporate lending.

Revenues were positively impacted by acquisitions, stronger trading and banking revenues, as well as higher underwriting and advisory fees. Partially offsetting, was lower revenues from investments in associates.

Our core banking margin was 2.38%, down 2 basis points year over year. Higher margins in our business lines were more than offset by lower contributions from asset liability management activities and the mix impact of higher volumes of lower yielding investment securities.

Overall, across the Bank, a good expense management performance in Q3. Continued investments in strategic initiatives contributed to a 5% increase in expenses, including higher technology and professional costs. Q3 productivity ratio was 52.8%, reflecting an improvement of 160 basis points year over year.

In regards to the restructuring charge we announced last quarter to drive efficiency improvements, the expected benefits from have started to accrue in Q3 and amounted to approximately CAD25 million. This CAD25 million benefit was only a small contributor to the strong 3.3% operating leverage this quarter. It is still early days, but as we look to 2017 and beyond, we expect our savings from this efficiency initiative to track on plan for a 200 to 250 basis point improvement in productivity for 2019.

Moving to capital on slide 7. As mentioned, the Bank continues to have a strong capital position. The Common Equity Tier 1 ratio of 10.5%, up from 10.1% in Q2. This improvement arose from strong internally generated capital of CAD1 billion, which increased the ratio by about 30 basis points.

After adjusting for foreign exchange translation, risk-weighted assets declined, contributing approximately 15 basis points to the improvement in the capital ratio. The RW reduction was from lower credit risk-weighted assets and market risk-weighted assets in Global Banking and Markets, only partly offset by slightly higher risk-weighted assets in Canadian Banking. The Bank's leverage ratio was 4.2%, a 10 basis points improvement from last quarter.

Turning now to the business line results, beginning on slide 8. Canadian Banking produced a strong quarter, with net income of CAD930 million, up 8% year over year. Loan volumes increased 3% from last year. Residential mortgage growth was flat or up 3% when adjusting for the Tangerine mortgage runoff book and prudently managed personal lending growth was up 8%.

Our effort to deepen customer relationships includes growing core deposits. This quarter continued the trend of deposit growth, with retail checking and savings deposit balances up a strong 9% and 14%, respectively. Our targeted asset and strong deposit growth reflect the execution of our strategy to improve Canadian Banking's business mix. As a result of optimized business mix and acquisition impacts, the net interest margin rose 13 basis points from Q3 last year.

Wealth management delivered a good quarter, with earnings growth of 5% year over year. Driven by market appreciation and net sales, AUM was up 5% while AUA was up modestly. Provision for credit losses were up CAD44 million year over year, due mainly to higher provisions in the retail portfolio, driven by growth in higher spread products.

The loan-loss ratio was up 6 basis points, notwithstanding the risk-adjusted margin was up 7 basis points from last year. Expenses increased 4% year over year or 2% adjusting for acquisition impacts. The increase was driven by higher technology, internal investments and salary increases, partially offset by benefits realized from cost reduction initiatives. Adjusting for the gain on sale last quarter, and acquisitions, Canadian Banking had delivered positive operating leverage of 1.7% year to date.

Turning to the next slide on International Banking. The business delivered another quarter of earnings above the CAD500 million mark, up 9% to CAD527 million from the same quarter last year. These results reflect continued strong operating performance with loans, deposits and fee income growth in the key Pacific Alliance region. Importantly, the level of loan losses improved from the elevated level last quarter.

International Banking continued to deliver strong loan growth, up 9% year over year, or 11% adjusting for the impact of foreign currency translation. The growth was driven by the Pacific Alliance which continued its strong loan growth, up 14% on a constant-currency basis from last year.

On a sequential basis, lending growth in Q3 in International Banking tends to slow. There is some seasonality in the business and if you look back over the past five years, it is observable. This quarter was also influenced by the election in Peru which was won by a pro-markets candidate. We have a solid pipeline and we expect the strong growth in the Pacific Alliance region to resume into next year.

The strong asset growth in International Banking was supported by excellent deposit growth, up 15% versus the same quarter last year on a reported basis, and up 17% when adjusting for the impact of foreign currency translation. The net interest margin increased to 4.79%, up 2 basis points versus the same period last year. Compared to last quarter, the margin improved by 10 basis points.

Relative to last quarter, loan losses decreased CAD64 million to CAD316 million. On a year-over-year basis, loan losses were up CAD23 million but the loan-loss ratio improved by 1 basis point.

Expense growth was 4%, primarily related to increased business volumes and inflation. The impact of higher costs from acquisitions was largely offset by the positive impact of foreign currency translation. On a reported basis, operating leverage was strong, a positive 2.8% year to date.

Moving to slide 10, global banking and markets. Net income of CAD421 million was up a very strong 12% from last year. Earnings growth was driven by higher contributions from fixed income, corporate banking, investment banking and precious metals, as well as the positive impact of foreign currency translation. The stronger business performance in Q3 also reflected an CAD80 million decline in loan losses from last quarter.

Trading revenues on a TEB basis increased over 20% year over year, driven by higher revenues across all product categories. Loan growth was strong, with total corporate loan volumes up 16% versus Q3 of last year, or up 13% after adjusting for the impact of foreign currency translation. Revenues also benefited from an increase in the margin, primarily from higher levels of loan fee amortization and the benefit from strong growth in deposits.

As mentioned, loan losses declined materially from last quarter, with losses down CAD80 million to CAD38 million. Provisions for credit losses this quarter related to a small number of energy-related accounts. The loan-loss ratio was 19 basis points, down from 57 basis points last quarter, but up from a very low level of 8 basis points a year ago. Stephen Hart will have more to say on risk and energy exposures in a moment.

Expenses were up 9% year over year, reflecting higher technology and regulatory costs, as well as increased stock-based and performance-weighted compensation, partly offset by lower salaries.

I'll now turn to the other segment on slide 11 which incorporates the results of group treasury, smaller operating units and certain corporate adjustments. The results include the net impact of asset and liability management activities.

The other segment reported net income of CAD19 million this quarter. Earnings in the segment were down from CAD72 million in Q3 last year and reflect lower contributions from asset liability management activities and higher expenses, which were partly offset by higher net gain on investment securities and lower taxes.

This completes my review of our financial results. I'll now turn it over to Stephen who will discuss the risk management.

Thanks, Sean, and good morning. We remain comfortable with the underlying fundamentals of the Bank's risk portfolios and performance continues to remain within our expectations. As noted last quarter, we expected the Bank's loss rate in Q2 to reflect the peak level of losses for the year and that remains unchanged.

A key driver of the loan losses last quarter were elevated levels of energy-related PCLs which have decreased materially quarter over quarter. Excluding the collective allowance increase last quarter our PCL ratio improved by 12 basis points quarter over quarter to 47.

Overall, our retail credit performance in both Canada and international is performing as expected and is generally stable. In Canada, we are seeing some regional weakness in Alberta, but that is being offset by strength in our other markets such as Ontario and BC.

Similarly, in international, the Bank operates across a diverse number of portfolios, across different geographies. Some books are performing better than others but overall credit quality remains good. Looking at our corporate and commercial loan books, we continue to see some energy-related provisions but the portfolio continues to perform well. I'll have more to say on the energy portfolio specifically in a minute.

Now looking at credit metrics, gross impaired loans were up 5% quarter over quarter. The increase was driven by foreign exchange as well as higher retail volumes in both Canada and international, as well as some in our global banking and markets exposure in the US and Asia. Our net impaired loans as a percentage of our portfolio increased 2 basis points quarter over quarter.

Net formations amounted to CAD788 million, down from the CAD982 million in the prior quarter. The improvement was driven primarily by lower formations in international commercial and global banking markets. Looking at our market risk which remains low, our average one-day all-bank VaR was CAD11 million down CAD2.9 million from the prior quarter.

Turning to slide 14 which shows the trend and loss rates over the past fives quarters for each of our businesses. For context, nearly 80% of our total PCLs relate to our retail business. As mentioned, our loan-loss ratio this quarter is 47 basis points, down 12 from last quarter and excluding the collective allowance increase. But it is up 5 basis points year over year.

In International Banking, the loan-loss ratio is down 24 basis points quarter over quarter, given the large energy-related provision that was taken last quarter, and is relatively stable compared to a year ago. Canadian Banking's PCL ratio was 29 basis points, up 1 basis point compared to last quarter. On a year-over-year basis, higher retail loan losses drove the loan-loss ratio up 6 basis points. The increase continues to reflect, in part, the Bank's evolution in asset mix into higher return products.

Global Banking and Markets improved materially from last quarter, given the lower energy-related provisions. Overall, we believe our credit portfolios remain in good condition. And as we've been proactive in managing our energy exposures and in taking provisions when required, we expect PCLs to continue to perform around similar levels in Q4.

Turning to the discussion of our energy portfolio on slide 15, I wanted to take a step back for a moment to recap our position and expectations. The Bank's now spent several quarters providing a detailed review of our energy portfolio and we believe our performance to date has been reflective of that guidance.

The Management Team's confidence is based on the Bank's strong understanding of the exposures, including detailed name-by-name reviews, ongoing stress tests, seniority in the capital structure and proactively engaging our clients, in addition to the quality of our borrowers. In every cycle we can expect some bumps along the way like we saw last quarter, but we believe that our overall energy book remains well positioned for the future. Last quarter we said that the loan-loss ratio reflected a peak level for the Bank and the energy-related loan losses were materially lower this quarter at CAD37 million, down from the CAD150 million last quarter.

Our drawn corporate energy balances declined CAD200 million to CAD16.1 billion and our undrawn book is CAD11.9 billion. Approximately 52% of our drawn portfolio is investment grade. That increases to almost 70% for the undrawn commitments.

Cumulative energy-related loan losses since 2015 are CAD314 million, translating to a loan-loss ratio of 1.9%. Looking specifically at our key areas of concern, namely the E&P and oil field services sectors, our exposure here has declined by CAD1.1 billion since Q2 as our management efforts continue to bring this book down.

The Bank's fully on track with our prior energy-specific guidance. In fact, at this stage we believe that we will operate at the low end of our 3% to 3.5% guidance for cumulative loan losses over the 2015 to 2017 period. We are encouraged that oil prices appear to have bottomed and continue to believe that there will be renewed interest in asset purchases and sales, as well as providing borrowers access to markets for capital.

Overall, we remain pleased by the resilience of our energy portfolio, senior ranking the capital structure and we will continue to proactively manage these exposures.

With that, I'll now turn the call back to Brian.

Thank you, Stephen. Before we open the call for questions, I'd like to highlight some of the key take-aways from our presentation and comment on the outlook for Scotiabank. As Stephen covered, we are comfortable with our risk positions and overall credit quality. With regards to our energy exposures, we have been consistent in stating that losses will be manageable. We are confident that losses in this sector have peaked.

In terms of our businesses, as demonstrated by this quarter's results and year-to-date performance, we have good momentum in our Canadian and International Banking businesses that we expect to continue through next quarter and into 2017. We are also encouraged by the improved results in global banking and markets this quarter.

With respect to our strategic agenda, we are continuing to make good progress. The restructuring charge announced last quarter will support investments to reduce structural costs and improve the customer experience, making us an even better Bank.

As we indicated, we expect to realize annual run rate expense savings of CAD350 million in 2017, growing to CAD550 million in 2018 and growing to over CAD750 million in 2019 from current expense levels. As a result, these initiatives are expected to drive productivity ratio improvement of 200 to 250 basis points for 2019, providing a very good return for our shareholders. We also continue to transform the Bank digitally, making investments to redesign and streamline processes.

In closing, we are pleased with our results this quarter. As we execute on our strategy we are delivering improved financial results and growing business momentum, all of which position us well moving forward.

I'll turn the call back to Sean for the Q&A.

Thanks, Brian. That concludes our prepared remarks. We will now be pleased to take your questions. As usual, please limit yourself to one question and then rejoin the queue to allow everyone the opportunity to participate in the call. Operator, can we have the first question on the phone, please?

Robert Sedran, CIBC World Markets.

Hi, good morning. Sean, when I look t on slide 9 of the international banking margin, it's almost a perfectly symmetrical V in a couple of consecutive material increases in that margin. When you think about business mix evolution and you think about monetary policy, should we continue to expect that upswing? Or is there a level at which you think it's going to stabilize?

As the asset mix continues to play out, we continue to see good growth in retail and commercial. The retail spreads generally have a better margin than commercial spread. The recent rate hikes will have a very modest increase to the margin. So overall, we'd expect margins to be at this level to slightly improving as time progresses.

Okay. And just quickly on the global banking one, I don't know that we often talk about this margin, but is the margin benefit there at all related to some of the risk-weighted asset mitigation that helped the capital ratio this quarter? Or is it something totally different?

No, the margin was largely impacted by our deposit growth and the continuing growth of our ancillary revenue and that really helped our margin this quarter.

Okay. Thank you.

Next question, please.

Gabriel Dechaine, Canaccord Genuity.

Hi, good morning. Just want to ask a question about the hot topic of residential mortgages. Your growth is 3% year over year in the Canadian business and that's relatively low. And I think at this stage a lot of investors would actually view that as a positive.

My question is, is there some element of restraint on your part, and if so, why? Is it because spreads aren't attractive or is it the risk profile you don't like? What's behind that trend?

Thanks, Gabriel. There is an element of choice, certainly. I think as we construct our balance sheet in a thoughtful and risk-sensitive way, our goal, I think, is clear. We've said for over a year now that we want to not close, but certainly narrow, the gap in our margin compared to our peers. So we're deliberately focusing on some asset classes more than others and very clearly we're focused on deposits as well.

On mortgages, we've had low single-digit growth in balances now for some time. It's clear that we've ceded some market share. But as I said at the outset, that is very much a choice. We feel very strongly that if we execute our strategy of investing in customer experience, shifting our business mix and improving our productivity ratio, we can continue to deliver earnings growth in the range of 6% to 9% medium term, and that's what we seek to do.

So you're ceding share sounds mainly like it's your margin appetite or preservation strategy, not so much that you're worried about something going bump in the night i Vancouver or something like that.

I think that's right. Look, we never look at returns without looking at risk at the same time. So it's --

Right, they go hand in hand.

(multiple speakers) But I think we'll give [sud] his share.

Okay. And just a quick one for Sean here. If I look over the past four quarters, the difference between the PCLs, excluding the net acquisition base benefit and the actual reported PCL, is about CAD150 million over the past four quarters. Is that going to drop pretty significantly next year?

Yes, that will start trending down in future quarters. The higher credit mark we're seeing this year is also helping to offset some of the integration costs which we really don't call out.

Got you.

There's two pieces to that equation in terms of the net benefit.

Are they fairly equivalent?

No, I'd say the integration costs may be 30% to 40% of what we're seeing on credit market.

Okay, thank you.

Next question, please.

John Aiken, Barclays.

Good morning. Stephen, in the MD&A there's a lot of talk on Canadian commercial. And yet, when I'm trying to go through the supp pack, I wasn't able to figure out exactly where this was coming from. Is this largely related to Alberta, broadly based along business segments? Or am I missing something here?

Sorry, I'm trying to find the reference in the MD&A.

Sorry, Steve, yes, in terms of Canadian provision for credit losses. You talked about the inflation on the consumer side but you also talked about commercial.

Yes. Commercial, quite frankly, was fairly modest. It's actually well below its historical average right now. In fact, we had one account in the oil field services and the rest were a little smattering here and there, not really related to Alberta specifically.

So Stephen, where I'm going at is -- I know we're at low levels at this stage in the game. Is this at a leading edge? Or is this just the anomaly where something popped up in the quarter?

No, I don't think there's any -- the trend is actually quite positive. The rest of the portfolio in commercial, Canadian commercial, is very strong, actually. As I said, we are watching the oil field services side and there could be a couple small bumps along the way on that, but we see it very positively going forward.

Great, thanks. I'll requeue.

Next question, please.

Meny Grauman, Cormark Securities.

Hi, good morning. Just following up on Gabe's question. There's a lot of talk recently, we're talking about growth in uninsured mortgages, specifically in BC. If I looked at your performance for the quarter, down 17% year over year. Hoping you could explain what's driving that decline?

Well, sorry, what's the minus 17%?

The growth in uninsured BC mortgages.

Okay. Well, let me make a few comments, then, on our mortgage book overall. What I'd say, Meny, is let's look at it first from a portfolio perspective. We did a very large bulk insurance deal in Q2. So 59% of our overall book now is insured and the loan-to-value on the balance is 50%.

If you look at this business from an originations perspective, the growth, as Sean said, is sub-3% year over year. And if you -- near zero, frankly, if you include Tangerine. From an operational perspective, newly originated uninsured mortgages have very stable loan-to-values at about 63%.

My point is, I think we're being prudent. I think we're being vigilant in this market. But we're not overly concerned. We believe we've constructed a very, very solid mortgage book here. But clearly, given that our strategy is to shift our business mix, we made a deliberate choice to do less mortgages and more of other asset classes.

Thanks for that. And then if I could just shift gears and ask about a question about the international business about Mexico specifically, US election's coming up and wondering how you view the risk of the US election to your business in Mexico. Won't mention any candidates, but do you see an impact on the potential outcome of the US election that would be negative to your Mexican business?

Well, in any election, there is some kind of disruption. As you mentioned, there can be volatility before the US election. But we don't see really anything material.

We see our business growing in Mexico very strongly, both in terms of loans, in terms of deposits. This was particularly a strong quarter. We were growing 19% in Mexico in constant terms in loans and 23% in deposits. So there can be some volatility, some noise in the media, but we don't see any structural impact.

Thank you.

Next question, please.

Mario Mendonca, TD Securities.

Good morning. Question first for Sean. You referred to the seasonal effects on loan growth in international. I think your comment was you'd expect that growth to resume going into 2017.

I just want to make sure I understand what you're saying here. Are you suggesting that seasonal factors could lead to a further decline in Q4, so you're really guiding to a 2017 recovery?

No, I'm saying that as we get beyond Q3, as we've normally seen, that asset growth picks up again in the fourth quarter and we're seeing that already. The Peru was a bit slower in Q3 because of the election, as we had mentioned.

We're seeing good pick-up in loan growth there in the last couple months which will come through in Q4. But maybe I'll let Nacho talk about the pipeline going forward.

Yes, I agree, Sean, it was really very tactical in the quarter. We are already -- we have a strong pipeline. We have already seen lending demand growing in Peru after the election. And overall for the Pacific Alliance countries, we see growth, double-digit growth, as our trend in the following quarter.

So this is just a very specific evolution during the quarter, basically based in Peru. We expect very strong growth to continue in the Pacific Alliance countries, currently growing 15% year over year in loans. And that should be the trend we should see in the following quarters.

I just wanted to make sure that you weren't providing us any specific commentary on the short term. The reference to 2017 wasn't a special reference then.

No, it's going into Q4 and into 2017, continuing the good year-over-year trends we've seen for this year.

Just touch quickly on that bulk insurance. I recognize that it was a Q2 thing.

When a bank like Scotia makes such a big change, and the numbers are huge, they were large compared to what we've seen from other banks. You're certainly not the only bank, though.

What I'm trying to get a handle on is what are the implications of making that change beyond just changing the risk profile of the Bank? Does it (technical difficulty) effects -- I imagine it improves the capital ratio somewhat but not materially because there's not a lot of capital on in uninsured mortgages. Are there any other financial implications, either from a margin perspective or anything else you can highlight?

No it really, as you touched on, has got some minor benefit for capital, some benefit for liquidity in terms of creating liquid assets. Should not have any meaningful impact on margin. It was just a cost-efficient way to enhance our capital and our liquidity position.

(technical difficulty) in the mortgage front, either as it relates to insurance or covered bonds or anything that would suggest to you that margins in the mortgage business could deteriorate somewhat in 2017? Or would you refer us to the interest rate environment which are the normal factors?

I think the latter. The mortgage markets as you know, Mario, has been intensely competitive for quite some time now. And quite frankly, we don't expect that to change.

On the regulatory front or insurance front that would worry you, it's just the macro environment that we've got to -- we're always faced with.

Precisely.

Thank you.

Next question, please.

Sohrab Movahedi, BMO.

Thank you. Quick question for -- just to follow up on that, James. Can you talk about what your decline rate on mortgage approvals has been, or mortgage applications has been, let's say over the last year? I don't need to know the exact number but how the trend has been. Are you declining more?

Yes, I would say generally -- and that would be true across the portfolio overall. So Sohrab, if I think about -- the first thing I'd say is in macro markets like this, the most important thing for us to do is work with our customers, our existing customers. That's job one. And we've certainly been doing that since early in 2015.

So we have been taking progressive actions across a number of portfolios. Those would include, as you'd expect, tightening exceptions, tightening of originations, reduce pre-approvals.

But I do want to highlight, it's also included internally a heightened focus, an investment in collections, more segmentation, more analytics. And we've added resources and people to deal with the macroeconomic environment as we see it.

Okay, thank you. And just a quickie for Brian. Any updates on the Thanachart file?

No, nothing really to report. As I've discussed before, we've always viewed this Thanachart as an investment and we'll proceed accordingly. Timing isn't really working in our favor right now but you'll hear from us when we think the market conditions turn around.

Thank you very much.

You're welcome. Next question, please.

Peter Routledge, National Bank Financial.

Hi. Wanted to ask a question about the US money market reforms due in October, due really to be in full force in October. And I know Scotia is active in that space for some of its funding.

So can you talk about what the short-term implications are for Scotia in terms of managing that transition? And then what are the longer-term funding cost implications?

I'll take that call, that question. Yes, we have been shifting our wholesale funding. As you have noticed, our wholesale funding is down significantly on a year-over-year basis.

We've targeted better retail and commercial and corporate deposit growth and that's playing out nicely which allows us to reduce our wholesale funding. So as the US money market funds become less available, that ties in nicely with our overall reduction in wholesale funding.

We've had reductions close to about CAD20 billion so far over the last year that we've managed through. We're now getting to a point where we think that rate of reduction will slow.

But we have been terming out our wholesale funding to better position our liquidity metrics. We don't see it being much of a challenge going forward on the remaining bit of the US money markets trending lower.

As you term out more, you don't expect any pressure on your core margin?

No, as I said, we've been doing that. That's had some impact over the past year.

But it doesn't show -- I mean, in your own data, it doesn't show up. You're not seeing real deterioration.

No, we're earning through it. As James talks about business mix changes, on the corporate lending side we're seeing good asset growth there to help earn through that as well. So we're not seeing it as a major headwind at this point.

And your business mix changes aren't driven by the rising cost of funding?

No, but it helps improve the margin which helps offset the other cost of terming out some of our wholesale funding. It goes hand-in-hand.

Yes, okay. Thank you.

Any more questions on the call?

There are no further questions at this time.

All right, okay. Thank you very much for participating. We look forward to hearing you again in Q4. Thank you.

Ladies and gentlemen, this does conclude the conference call for today. You may now disconnect your line and have a great day.