Canada’s Bank of Nova Scotia on Tuesday beat estimates for its first-quarter profit, helped by robust growth in interest income, while Bank of Montreal (BMO) fell short of expectations due to bigger loan-loss provisions.

A string of rate hikes by the Bank of Canada have allowed lenders to charge higher rates of interest on loans, which has boosted their net interest income (NII).

But elevated borrowing costs have also raised threats of borrowers defaulting on their loans, and banks are responding by building bigger buffers to safeguard against such loan losses.

NII – the difference between what banks earn on loans and pay out on deposits – grew nearly five per cent for Scotiabank and jumped 17 per cent for BMO in the reported quarter.

Click to play video: 'Canadians extending mortgage amortization'

Canadians extending mortgage amortization

But at BMO, provisions for credit losses (PCLs) grew three-fold, offsetting gains from higher NII. Scotiabank’s reserves surged nearly 51 per cent.

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BMO’s market-sensitive businesses also took a hit, with net income from its capital markets unit dropping 19 per cent due to weaker trading.

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The lender’s CEO Darryl White said the environment “has constrained revenue growth in market-sensitive businesses in the near term,” but the bank was reducing expenses and “optimizing” its balance sheet.

Scotiabank’s adjusted profit stood at $1.69 per share, compared with average analyst estimate of $1.61, according to LSEG data.

BMO’s profit came in at $2.56 per share, lower than expectations of $43.02.

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