Good morning and welcome to Scotiabank’s 2020 Second Quarter Results Presentation. My name is Philip Smith, Senior Vice President of Investor Relations. Presenting to you this morning is Brian Porter, Scotiabank’s President and Chief Executive Officer; Raj Viswanathan, our Chief Financial Officer; and Daniel Moore, our Chief Risk Officer. Following our comments, we will be glad to take your questions. Also present to take questions this morning are the following Scotiabank executives: Dan Rees, from Canadian Banking; Nacho Deschamps from International Banking; Jake Lawrence and James Neate from Global Banking and Markets; and Glen Gowland from Global Wealth Management. Before we start and on behalf of those speaking today, I will refer you to Slide 2 of our presentation, which contains Scotiabank’s caution regarding forward-looking statements. With that, I will now turn the call over to Brian Porter.

Thank you, Phil and good morning everyone. I would like to begin my remarks today by discussing the COVID-19 pandemic and the impact it has had on our employees, our customers and the communities we serve. Firstly, I would like to sincerely thank our customers for their loyalty, patience and understanding. As your bank, we are here to support you. I would also like to recognize our employees for their dedication and commitment and support of our customers, whether it is in our branches, call centers or operation centers, Scotiabank employees have gone above and beyond to provide service, advice and relief to millions of loyal Scotiabank customers. On behalf of the bank’s leadership team, I would like to extend my sincere thanks to all our employees for providing customers with the critical banking services they need. We are proud and appreciative of their efforts. I would also like to recognize the very strong policy response from the Bank of Canada and the Government of Canada. The response to the crisis has been swift and characterized by a high level of coordination and cooperation between policymakers in the banking sector. Since the pandemic began, the bank was quick to recognize the threat and adapt quickly. We maintained a close to normal operations as possible to support our customers, while also ensuring the safety of our employees. We have a business continuity planning beginning in late February as the threat of the pandemic became more apparent. Our considerable technology investments in recent years, has played a key role in our response to the crisis and our operational resilience. It has allowed over 80% of our employees, excluding branch staff to shift quickly and smoothly to remote work environments, while our technology teams have rapidly developed new online tools to assist customers…

Thank you, Brian and good morning everyone. I will talk on Slide 9. The bank’s results this quarter were negatively impacted by COVID-19 given higher credit costs, reduced consumer demand in the second half of the quarter, and the impact of customer deferral programs. In addition, our previously closed divestitures impacted the period-over-period comparison of our results. Adjusted net income was $1.4 billion and diluted EPS was $1.04 for the quarter, down nearly 40% compared to last quarter and last year. The results were significantly impacted by higher loan loss provisions and charges related to our metals business. Also on an adjusted basis, total PCLs this quarter increased by $1.1 billion to $1.8 billion, mostly in performing PCL loan provisions. The adjusted PCL ratio increased 68 basis points to 119 basis points. Pre-tax pre-provision profit improved 1% on an adjusted basis, reflecting the good revenue growth and prudent expense management across the bank. Excluding the metals business charges, pre-tax pre-provision profit improved a strong 7%. Revenue increased 4% from last year driven by volume growth, higher earnings from asset liability management activities and strong trading revenues. The core banking margin of 2.35% was down 10 basis points from last year. Business line margin compression was offset by benefits from the bank being positioned for declining rates reflected in the other segment. The decline was primarily driven by increased growth in lower-margin treasury assets, driven by significantly increased liquidity in the latter half of this quarter. Expenses were up 8% year-over-year or a modest 5%, excluding the metals business charges and divestitures. The growth was primarily related to higher regulatory and technology costs. Our Q2 earnings incurred a charge to cover expenses related to our metals business both with respect to the wind down of this business and provisions. As disclosed…

Thank you, Raj and I will begin my remarks on Slide 17. COVID-19 has led to significant provisions being recorded across the banking sector globally. This morning, the bank reported provisions for credit losses of $1.8 billion reflecting an increase of about 156% from a year ago and up 139% from last quarter. We also saw significant increase in our PCL ratio to 119 basis points, up 68 basis points from both last quarter and the prior year, reflecting the current economic outlook. While the economic environment remains uncertain, the bank has taken a sufficient level of provisions at this time and we are appropriately reserved. This reflects our bank’s specific business mix, unique geographic footprint and conservative assumptions. The provisioning process this quarter reflects multiple stress and recovery scenarios and significant expert credit judgment. It also factored in the impact of elite programs and reflected specific guidance from regulators. As expected, the provision this quarter was heavily impacted by higher PCLs on performing loans as a direct result of assumptions reflecting COVID-19. Specifically, it was based on a more unfavorable economic outlook in our base case, including lower GDP, lower oil prices and higher unemployment. While generally part of our annual disclosure, this quarter, we have provided our updated macroeconomic forecasts across various scenarios, including our new fourth pessimistic scenario that was introduced last quarter. You can find details of these at our Q2 MD&A. I would also point out that the current quarter provisions are skewed significantly towards the two pessimistic scenarios in line with our approach to conservative provisioning. Based on current data and current forecasts, we would expect our provisions to remain elevated compared to normal levels for the rest of the year. Turning now to Slide 18 provisions on performing loans increased $954 million year-over-year…

Thank you, Daniel. We will now be pleased to take your questions. Please limit yourself to one question and then rejoin the queue to allow everyone the opportunity to participate in the call. We will return at the end to make a few closing remarks after Q&A. Operator, can we have the first question on the phone, please?

Thank you. [Operator Instructions] The first question is from Doug Young from Desjardins Capital Markets. Please go ahead. Your line is open.

Good morning. And probably a question for Nacho and maybe Daniel, but just thinking of the Caribbean exposure, it’s an area that’s relatively unique for your bank in particular and thinking of the pressure on tourism, how should we think of Scotia’s positioning from an allowance perspective, a business perspective, can you give us a little bit of an update what you are seeing there? And I did notice the PCL on the Caribbean and Central America business was up quite materially sequentially, just thinking how we should expect that to move sequentially here? Thanks.

Yes. I will start and then Nacho will follow, Doug. So, yes, our provisions were up there reflecting as I mentioned before our conservative approach to our provisioning. I want to say, in general, as a message our book of business, what we have done in terms of de-risking efforts frankly over the last 5 years it’s going to pay incredible dividends through here. That matters tremendously in the forward outlook. Principally, in the Caribbean, we have been focused as you know on reducing our exposure to higher risk markets through divestitures and active de-risking measures in the countries that we remain in. Currently, customer assistance programs are showing improvement in portfolio performance with a significant decrease in early delinquency across the region. We have adjusted our risk strategies to reflect changes in the risk profile and this [isn’t] [ph] followed by an expansion of customer assistance capabilities based on those increased delinquency volumes. Over the coming months, we expect delinquency levels to be changeable as the economic impact in the region is expected to last through the end of the year and this is reflected in our provisioning methodology. But I’d say overall, Nacho, that we are pleased our recent divestitures in Central America and Caribbean are complete and this results in a better risk profile for the region.

Yes. Let me complement the question, Doug. I would say first, it’s important that we have reduced our exposure in the Caribbean through divestitures that have been important, but I would say that the deferral programs in general for international banking, in particular for the Caribbean are very important to help our customers bridge this cash flow impact. So – and this is not unusual for us in the Caribbean, let me remind you that, 2 years ago, we had the Irma and Maria hurricanes. They were quite material. Today, we are supporting 2 million customers in international banking, 2.5 million, and in that event we are supporting 0.5 million customers in the Caribbean. At the end, we end up releasing some provision, because the real losses that we had in the credit losses were less than expected. So, yes, the Caribbean will be impacted significantly due to tourism in the short-term, but it’s also very much linked to the U.S. economy. As the U.S. economy recovers, the Caribbean should recover too.

So, just to summarize, I mean, it doesn’t feel like you are too concerned your provision it feels like you are suggesting that appropriately and you are watching the business I guess, it doesn’t feel like you are too concerned, is that a fair kind of takeaway from?

Yes. I would say we are provisioning the Caribbean similar to international banking. Really, our PCL provision is twice our normal run-rate and that applies to the Caribbean and the rest of our footprint.

Thank you.

Okay. Operator, next question please.

Thank you. Our next question is from Gabriel Dechaine from National Bank Financial. Please go ahead. Your line is open.

Good morning. Two questions, one on credit, one on capital and Daniel, just start off with capital, you talked about the outlook for credit, you said it’s going to be elevated relative to your normal levels for the remainder of the year, pretty broad statement, I get it. I just want to kind of get a sense for how you are visualizing it. We got a big spike this quarter. Are we going to have a couple more quarters like this one or does it moderate as some of the performing provisions migrate into impaired provisions and that kind of leads to more of a grading down from this level?

Good question, Gabriel. Let me start with that. I know you have a two-part question, let me just start with that one. So, as I said, we expect the provisions to remain at elevated levels versus normal run-rate going forward. That would be understanding that’s a wide range [indiscernible] be towards the higher end of that range for the next quarter and then we would be – have a perspective that recognized that in current circumstances Q4 is a significantly long forecast given the current uncertain economic and outlook climate that we have that we see some moderation in that result going into Q4. Brian, I think you have some additional words.

Yes, Gabriel, thank you for the question. It’s Brian. There is a lot of unknowns here as these economies come out of lockdown, a lot of different variables. So we are not to trying to avoid the question at all, but I would say that as we look forward, Q4 is a long way off, but in terms of Q3, I would expect Q3 to look very similar to what we experienced this quarter from how our vantage point is today.

Okay. Well, it was only $20 million off in my provision forecast, I am happy. So the capital question, I might be early as well of course, but you are doing a whole bunch of stress tests and changing your economic scenarios. Do you have any quantification you can provide on the capital consumption that might come from credit migration?

Sure, Gabe. It’s Raj. I will see if I can help you with that question. I think as part of prepared remarks, we talked about the 190 basis points excess over OSFI minimum which we have now which equates to between $90 billion to $100 billion of risk-weighted assets. And that’s a lot, as you can imagine, it’s close to 20% to 25% of our existing RWA, so a long way to go before we get there. And you’re right, we ran a lot of scenarios. A U-scenario recovery, a V-recovery scenario, an L-scenario, a W-scenario, all kinds of stuff we have done in this quarter and the limited time that we have. But what I can tell you, Gabriel, based on all those results, in all these scenarios, our capital ratio, as far as we can look forward today and using the most conservative assumptions that we can imagine today, is in excess of 10% in all these scenarios quite comfortably. And that’s based on obviously declining or lower earnings that we expect to see, in line with being conservative when you do some of these stress tests and also supporting the dividend payout that we expect to continue to make. So, I think we feel good about our capital ratio the way it is, and we’ll continue to track it as closely as we are required to do. And as Brian mentioned, as these economies open, we will have a better understanding of what might be the requirement for additional RWA inflation. But most of it, we think is significantly covered with the capital ratios that we carry today.

So even in an L-shaped recovery, including migration and other factors, you’re expecting the core Tier 1 to remain above 10%?

That’s right, Gabe, at this time. Yes.

Thank you.

Welcome.

Operator, can we go to the next question please?

Certainly. Thank you. The next question is from Steve Theriault from Eight Capital. Please go ahead. Your line is open.

Thanks. Maybe I’ll turn to margins. Assuming – Raj, can you help us out – assuming no central bank movement from here, no change in drawdown levels, although – and I think we all anticipate we will see that over time, but from where we are today, how much more margin downside do you expect near-term as the rate cuts sort of filter into the P&L a little more fulsomely?

Thanks, Dave. You saw this quarter our margin was compressed about 10 basis points. And as we had mentioned before, we are well positioned for declining rates, either driven by market events or driven by central bank rate cuts the way it took place both in Canada and in our International footprint. The real compression only came because we carried higher liquidity this quarter driven by all the events that happened this quarter and a significant amount of increase in say deposit with banks, which as you know, is lower margin returns. Outside of that, it actually offset any compression we saw within Canadian Banking and International Banking at the all bank level. But looking forward, directionally, we expect the all bank margin to trend down. Extremely low interest rate environments, higher liquidity levels, all of this is going to play into that factor. Although what we have done is, the hedges that we had on our balance sheet, positioning it for lower rates, we have crystallized those hedges. So that’s going to – the way accounting works, it gets amortized over the next 8 to 10 quarters through our P&L. So that should be a nice offset to it. But really, we look at risk-adjusted margin in this Bank as we look at all our business and how we evaluate our portfolios. So you look at the Bank’s risk adjusted margin over the last few years, it’s been healthy around 200 basis points plus. And individually, when you look at our business line, be it our International business line, or Canadian, it seems to have trend consistently in that range. So directionally, lower – very difficult to quantify as you can imagine, at this time, but I suspect that for some period of time it will trend lower then flatten out. But in our case, we have the offset relating to the positioning of the Bank, which we did in the crystallization of hedges, that should help us.

Alright. And then just to follow-up on the previous question. You talked about the CET1 under your stress scenarios staying above 10%. Is there any consideration toward a DRIP discount to accrete some CET1, like do you think that’s necessary or feasible in this environment, or do you feel like, given all your stress testing and where you’re at that that’s not necessary from a capital perspective?

Yes. I would say, the short answer to it is, it is not necessary from a capital perspective for us to introduce a DRIP discount. Our capital ratios are quite comfortably placed, like I mentioned, based on all the stress scenarios we have run. And at this time, we don’t think that’s required at all.

Thank you.

Operator, can we have the next question please?

Thank you. The next question is from Ebrahim Poonawala from Bank of America. Please go ahead, your line is open.

Good morning. I just wanted to follow up, if you could help us in terms of – you provided clarity, Brian, thanks for – in terms of PCLs, third quarter potentially staying at elevated as we saw in 2Q. But if you can help us just to think about like IFRS 9 impact, the deferral impact, just the cadence of PCLs as we think through over the next year? And I know, 2021 is tough, but given what we know about the macro outlook today and a potentially U, L shaped recovery; like, do you anticipate that the reserving methodology will lead to PCLs peaking sometime this year, absent something going wrong? Or could we see a long tail around another round of higher PCLs once deferrals roll-off and you start seeing credit migration?

Thank you, Ebrahim. First of all, I want to recognize, as Brian did, that this is a challenging time for many of our customers. And so, we work very hard at the Bank to support them and we’re confident at the Bank and the strength of our portfolio and our balance sheet. I think as backdrop to answer this question, it’s also important to keep in mind the nature of this event. It is a health crisis with economic effects, but it’s not the consequences of macroeconomic policies or lending practices. As a result, the shape of this economic recovery will be driven by the timing of the orderly reopening of the economy, which will directly impact employment, wages and consumer confidence. So as Brian indicated, based on our data and forecasts and the extent of the relief measures that we have in place to-date, we expect approximately a similar PCL run rate for Q3. Ultimately, the outlook for our PCLs comes down to the timeline for reopening the economy, which drives employment, consumer confidence. But I will say, there are some promising factors to take notice of. You talked about deferral options. Deferral options have been offered to those customers who need cash flow relief. We think about these as a bridge. Customers have been given an option, a convenient option, some have chosen it. The objective is to support toward repayment. And in fact, in the Canadian environment, we see our Canadian household balance sheets being strong and in fact being stronger as a result of the many deferral and relief measures that have been provided. Our customers, frankly, are being fiscally responsible. You’ll see in the disclosures that our card balances are down 8% globally and 12% in Canada. We haven’t seen material change in our HELOC…

Sure. That is helpful. Just if one follow-up tied to that, when we think about deferral stabilizing, do you think – if like re-openings play out over the next month or two, do you expect that in the next couple of months you will have a better sense of just the actual credit migration that we see both in the commercial and the consumer books?

I think, as we see macroeconomic data, we’ve already seen this over the last, let’s say, 6 weeks, as we’ve been following Bank earnings. We’re getting greater clarity as to what the evolution will look like and what the government measures will allow for reopening of retail and return to employment. Early stages, again, as you indicated we would be buoyed by some of the news that we see. But we are not epidemiologists in this room, although we all become positive epidemiologists in our part time. But I would say, we have reason to be modestly or perhaps even cautiously optimistic on the outlook from here. But that does not counter our conservative approach to provisioning. Dan, I don’t know if you wanted to provide any additional color on what you’re seeing in your book of business.

It’s Dan Rees here for Canadian Banking. I would just underscore that the majority of customers that have taken a deferral are either continuing to make payments on that deferred product in many instances, or where they have a second loan product are maintaining payments on that second loan product. In consumer retail Canada, the net number of loans in deferrals, we expect to begin to decline shortly as a result of either expiring deferrals not being needed or paid down. So our recent experience has been encouraging. It varies a bit by region, but we’re encouraged by what we see in the last number of weeks

So, I’d say, in summary, we will see flow from performing allowances for credit losses into non-performing as this evolves. That’s why we set up our performing reserves. It is a preventative measure. But based on our current forecasts and estimates, we view ourselves as conservatively and appropriately provisioned.

Thank you for taking my questions.

Operator, can we have the next question please?

Certainly. Thank you. The next question is from Mario Mendonca from TD Securities. Please go ahead. Your line is open.

Good morning. [Technical Difficulty] provisioning today, but you’re also saying that you’d expect loan losses to be about this level next quarter. So what I’m getting at here is, what is the mechanism that you see playing out that causes credit losses to be this high next quarter? Because what I interpreted IFRS 9 to be, is that you build in the lifeline losses when it’s Stage 2, the 12-month losses when it’s Stage 1. So, if you have already done that, then what do you expect to change next quarter? Do you expect to make your assumptions even more conservative than they are now? So, help me reconcile those two statements, that you’re appropriately provisioned today, but next quarter you expect a similar level of provisions.

So, I think your observations on the intent of IFRS 9 are consistent with the original roll out of IFRS 9. But if you follow the guidance, Mario, from the IASB, from the PRA from the Bank of England and from OSFI here, as well as other geographies, we are effectively into Version 2 of IFRS 9. I think the FTE said it well when they referenced the first fatality of the pandemic being IFRS 9. So, the guidance have changed significantly to ensure that we look to long-term established economic trends, as well as the full impact of government deferral programs and relief measures that have been rolled out throughout the geographies that we operate in. This has changed and had an impact on our IFRS 9 methodologies as we think about how to do this in an environment where the data is still evolving. So, we think we’ve taken that guidance appropriately into account as we look at this going forward. Of course, this will, as I said, be impacted going forward by the evolution of employment, principally, of the duration and extent of relief measures, consumer confidence is going to be a big factor and public health factors in general. But the essence to our perspective on where we stand on appropriateness is that we have done significant work in de-risking the book over the last five years. That’s an important – the foundation matters. To that point, we’ve enhanced our customer assistance programs to help our customers get through this. You know that we’ve invested significantly, $15 billion over five years to keep the Bank operationally resilient. We’ve invested in digital significantly to improve our accessibility to the customer with 80% of our deferral programs in international being accessed through the digital channel. And we’ve invested in new originations capability, analytics and in our core geographies to strengthen our balance sheet and our portfolios. You’ll see the impact of that going forward, Mario.

But can you tell me what will change next quarter? Will you just essentially forecast that unemployment is materially higher than 11%? Is that what we’re going to see next quarter that causes the performing loan losses to be so high?

No, the impact in the coming quarter is, as you see the shift from the estimates produced by forward-looking indicators, the unemployment figures that we’ve conservatively taken here, the WTI, the GDP changes that we’ve taken and are very pessimistic scenarios, you then get the migration into restaging and into defaults that happen through the normal course of the portfolio. So, that will continue to drive the elevated allowance for credit losses and provisions for credit losses that we’ll have in Q3, but we would have a perspective that that would moderate from there as the full impact of that comes through.

Mario, it’s Brian. This is as we all know this is not a garden-variety recession. So, to put traditional recessionary economic modeling on this is not really appropriate. Parts of the economy will snap back pretty quickly. There’ll be heads up demand. The impact of the relief programs the government has provided will have its intended impact, but we’ve never been through this before. On the flip side of that, there is structural damage to part of the economy and the industries we talked about, whether it’s energy or hospitality or travel. Don’t know the extent of the damage there yet. And that varies by country and region. Different countries went into different – into lockdowns at different times. So, we’re going to have varied results. We have a high degree of familiarity of running these deferral programs and Nacho said it very well, with Hurricane Irma and Maria in the Caribbean two years ago, we had 500,000 of our customers in these programs. The outcome was very good for the Bank, in terms of our loan losses were de minimis. But we’re cautious here. And this is not a one quarter or two quarter event. The banking sector will be picking up broken egg shells for a number of quarters here.

Okay. I just – For what it’s worth, I don’t see how those two statements can both be true simultaneously that your content with your reserves now but you’re going to book another maybe $1.8 billion next quarter…

I said they would be somewhat in the same vicinity. I didn’t give you a number, and I also said look to the balance sheet. We have $6.1 billion of reserves on our balance sheet, which we think is more than adequate at this time. If you’re asking me, "What’s going to happen the next quarter?" I’m going to say, from what we see here right now, it’s going to be similar to Q2.

Okay. Thanks.

Operator, can we have the next question please?

Thank you. The next question is from Darko Mihelic from RBC Capital Markets. Please go ahead. Your line is open.

Hi. Thank you and good morning. A few questions here, and these are all primarily for Dan, I believe or maybe Raj as well. I’m trying to follow, if you look on the supplemental, the capital supplementary, so it’s Page 15, the flow statement. And what I’m looking at is the increase in risk-weighted assets from the change in asset quality, and it’s a mere $1.7 billion, which is very small. So, I’m trying to connect a couple of dots here. I mean, what we saw was we saw about $5.8 billion of loans that were migrated to Stage 2 this quarter. So presumably, they have had a significant increase in credit risk. And yet, the increase in the amount of RWA because of asset quality seems quite light. So, I want to connect a few dots here, Dan. As we go forward into next quarter, presumably there will be migration to Stage 3 and perhaps more Stage 2, because certainly the $5.8 billion or $5.9 billion of Stage 2 increase is very disconnected from the deferred loans. And so, what I’m getting at is, as we see this sort of migration occur next quarter and perhaps even in the quarter after that, should we see a big connection here to that asset quality or the RWA inflation? And maybe you can size it for me. If we have $5.8 billion of Stage 2 migration, if that same $5.8 billion migrates, or let’s say half of it migrates to Stage 3, what will be the RWA impact? And I realize these models are a little disconnected, but I’m just trying to gauge what the RWA inflation might look like next quarter and the quarter after.

Okay. So, I’ll start first, Darko. Thank you for the question. You’re right, the $1.7 billion you referred to is RWA inflation on migration that happened this quarter. It’s actually an increase of close to $3 billion relating to our corporate commercial portfolio, and there was an improvement in the retail portfolio. As you know, retail is highly diversified. It goes across many countries. This number that we are talking about, it’s mostly Canadian because it’s ARB number that you are referring to. And the Canadian portfolio is mostly secured 92%, to 93%, as we have talked before. So, you do expect to see some level of movement up and down and not consistent with what you will see in the corporate commercial portfolio. To answer your question more directly on what do we see at this time, looking forward, RWA inflation I think will be around the 40 basis points, 45 basis points range that we think, based on all the modeling we have done and the scenario that I referred to earlier in a question on the L-shaped and U-shaped and all those stuff. But that, like I point out to you, highly diversified portfolio extreme levels of stress we have used to figure out do we have adequate capital. That was the objective of that stress testing that we did. And that tell us, at this time it will be around that range. We’ll continue to update our stress scenarios, as well as our outlook as we go forward. It could become less stressed, might become less pessimistic than we are looking at this time. But we feel comfortable it will be around that range if it played out the way we have modeled it.

And should I connect it too, I mean, is it – should I be expecting that RWA inflation to be connected to the migration to Stage 2 and to Stage 3, is that a fair connection to make?

I think there will be some connection, Darko. I don’t know if there is a direct connection. Because as you know, IFRS 9 works on point-in-time cycles, while Basel works up through the cycle. While Basel has got downturn LGD, IFRS 9 does not have downturn LGD. So, there is nuances which will have differences. But directionally, there should be some level of correlation not exactly a 100% correlated number that you would see.

Okay. Thank you.

Operator, can we have the next question please?

Certainly. The next question is from Meny Grauman from Cormark Securities. Please go ahead. Your line is open.

Hi. Good morning. Following up on the deferral question, what are you assuming for the unemployment rate at the end of the deferral period? And is there any talk of extending the deferral period? What are the odds of that being extended?

Meny, Daniel here. I think we’ve given our forecasts for unemployment under a variety of scenarios for our principal geographies in the MD&A. But overall scenarios, that ranges from a rate of frankly 11% at the 12-month mark through to the high teens. So, I think we’ve provided a conservative unemployment forecast. On the treatment of deferrals post the end of the deferral period, a reminder that our mortgages are generally on a six-month deferral, whereas our auto and cards portfolios are on a 3-month portfolio basis. We are going to work with our customers on a case-by-case basis. As I indicated, the impact on payment at the end of the deferral period, for auto is zero, effectively. The impact on the payment amount for cards is about $22 on average. So, we’ll be working through our customers, segmenting them appropriately and reaching out to provide assistance to them through the end of the period.

Okay. And then, just more broadly on the health of Canadian balance sheet, it’s reported that you stopped the land brokers to use HELOCs for down payments on investment properties. I’m just wondering are there other changes to underwriting that you’ve made that are notable and anything else that’s being contemplated? And do you expect that to impact loan growth going forward, mortgage growth in particular?

Meny, hi. It’s Dan. I’ll take that one. That’s small change you referenced which is sort of consistent with the industry. We obviously attracted a little media attention. It is the only material change we’ve made in terms of mortgage origination standards. We do anticipate that notwithstanding our strong mortgage growth in the quarter, reflecting a healthy pipeline in Q1, that that could well moderate a little bit from here. And we don’t plan on any additional origination changes in that portfolio at this time. I would say we did tighten origination standards quite early on in the auto sector, where we are a market leader. We work closely with customers, as Daniel said. But we felt it was important to introduce the requirement for proof of income and proof of employment. And so, we should expect to see that loan book slightly slow for the next couple of months.

Thanks for that.

Operator, can we have the next question please?

Thank you. The next question is from Scott Chan from Canaccord Genuity. Please go ahead. Your line is open.

Good morning. I just wanted to tie in Darko’s question about, Raj, the RWA inflation and the stress test that you alluded to. The stress test that you stated, of having a CET1 ratio of over 10%, was that for the duration of fiscal 2020?

That’s – looking through to 2020, Scott, and beyond, because the recovery will start, let’s say, in Q2, Q3 of next year. The number I quoted was a low point.

Low point, okay. And maybe just one question on Canadian Banking, could you provide some NIM outlook similar to what you suggested to us for International, please?

Sure. I’m happy to go with that Scott. As far as Canadian Banking NIM goes, there’ll be some level of compression, like you saw this quarter, 7 basis points year-over-year, or 3 basis points quarter-over-quarter. Driven by all the reasons that I mentioned in my prepared remarks, central bank rate cuts; full quarter impact, we will see it next quarter, it was through this quarter couple of times, as you know. Business mix changes, definitely is going to have an impact. And one thing, which is consistent, is competitive pressure. As the economy starts recovering and opening up over there, we expect all our peers to be competing for the same business and that’s always going to result in lower rates as we have seen in the past, so multiple factors. Would we see some level of compression? Like I mentioned earlier, the all bank, you will see compression and you’ll see it in the Canadian Banking business line as well.

Okay. Thank you very much.

Okay. Operator, can we have the next question please?

Certainly. Thank you. The next question is from John Aiken from Barclays. Please go ahead. Your line is open.

Good morning, Raj. We saw actually an impressive performance on efficiency, and as Brian pointed out, adoption of digital. As we look down the road, can we see an impact of the pandemic and obviously, the work from home scenario, can we actually see some material structural changes to the bank’s expenses going forward call it in year and a half, two years?

It’s a good question, John, and thank you for that. Part of the 5% growth this quarter was what we call COVID-related expenses. It talks about the higher per diem payments we have made to lot of our front-line employees who were kind enough to come into work physically rather than working from home because of the necessity, additional sanitation needs, flexi-glass, more technology investments and so on. So, that’s 2% of the 5% growth really at the all bank level. But if you look at the 3% growth and if we look forward, there’ll be lot of learning’s that we expect to get through this whole process. As Brian mentioned in his prepared remarks, 80% of the people who work-from-home, there is going to be some benefits that will translate into how we work going forward for the Bank as a whole, actual result in savings. Not sure how soon the travel costs will come back to being normal if it does come to it. If people think we’ve been effective and efficient not having to travel across the footprint and so on, I see some benefits that will come through that. I’m sure we’ll see some benefits as we think through our real estate strategy, back to the work-from-home. Lot of things, but all of it to say, John, very early for us to estimate. It’s on our list of things that we’d like to help understand what worked well, what can work better and how can we change the way we work, which might result in our expense structure changing as we look forward, like you mentioned, over the year or two. A little early to tell, but I would say that we should see some benefits looking forward.

Understood. Thanks, Raj.

Thank you.

Okay. Operator, can we have the next question please?

Certainly. Thank you. The next question is from Sohrab Movahedi from BMO Capital Markets. Please go ahead. Your line is open.

Thank you. Maybe Brian, maybe I can go to you. I mean you were pretty adamant about getting the Bank ready – to be downturn ready, if you will. I don’t know if you were forecasting this, but de-risking exercise and what have you, I think, has allowed you at least to come into this well prepared. I am curious to know how much of your time and the Executive Committee’s time right now is still focused on blocking and tackling associated with this? How much of it is basically consumed by which business segments? And are you yet ready to play offense, or is this still in a defensive – keeping the defense on, if you will?

Yes. Good question. Thank you, Sohrab. We made a comment in our remarks about operational resilience. And I think that’s the most important thing here as we have spent a lot of money over the course of the last 5 years in terms of upgrading technology throughout the bank, digitizing the bank making it easier for our customers to do business with us, upgrading customer assistance technology, all sorts of different things, so significant investments in people, process and technology. So, as the operating committee meets a number of times during the course of any week in this event, it’s largely around operations and making sure the bank is running efficiently are we setup for the next stage of what we have to deal with here in a specific country. So, as I said on an earlier question, this is not a garden-variety turndown, this is significantly different. I am very pleased with how the bank has responded. And again, that’s really a reflection of what we have done to make the bank more resilient and operationally more efficient in the course of the last 5 years. So, we feel pretty good about that. But we are also very cognizant of – there is structural damage out there from a credit perspective. We think it’s manageable, but in some cases, it’s going to take time as these countries get through lockdowns and Canadian households and businesses work through these deferral programs as well as internationally. So, pleased with how the bank has performed. And again, our significant investments in people, process and technology I think have paid dividends for the bank here.

Thank you.

Okay. Thanks. So, operator, that’s the last question. We will now conclude with some closing remarks.

Just some brief remarks, it’s Brian. When I reflect on the current situation of previous downturns, I am reminded of three fundamentals that are key to a stable and successful bank, which all relate to balance sheet and their robust capital, high-quality assets and ample liquidity. And the bank’s current position is fundamentally very strong in all three areas and this bodes well for the bank as economies reopen in the weeks and months ahead in the markets where we have a significant presence and we look forward to better times ahead. So, with that, thank you everybody for participating on our call and appreciate your time and attention.

Thank you. The conference call has now ended. Please disconnect your lines at this time and we thank you for your participation.