Good morning. And welcome to Scotiabank’s 2020 Third 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 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 two of our presentation which contains Scotiabank’s caution regarding forward-looking statements. With that, I will now turn the call over to Raj Viswanathan.

Thank you, Phil, and good morning, everyone. I will begin by discussing our financial performance starting on slide four. I will then pass the call over to Daniel to discuss risks and Brian will conclude our presentation with some observations and comments. The bank’s results in Q3 were negatively impacted by a full quarter of COVID-19, which resulted in higher loan loss provisions and lower customer activity. Retail Banking in Canada and across the International footprint saw lower revenue and higher loan loss provisions. At the same time, we had record results in Global Banking and Markets, and solid growth in Wealth Management both of which benefited from strong customer activity. Adjusted net income was $1.3 billion and diluted EPS was $1.04 for the quarter, which is in line with the last quarter. On an adjusted basis, total PCLs of $2.18 billion increased $335 million quarter-over-quarter as we continue to add to allowances to capture the impact of COVID-19 and its future credit migration impacts. The PCL ratio increased 17 basis points quarter-over-quarter and 88 basis points year-over-year. With this, our allowances have increased to $7.4 billion or approximately $2.3 billion in the last two quarters. Pre-tax pre-provision profit declined more modest 3% on an adjusted basis. Adjusted revenue declined 3% from last year or in line excluding the impact of divestitures. Net interest income, excluding divestitures, was flat as high contributions from asset liability management activities and loan growth was offset by the negative impact of foreign currency translation. Non-interest income, excluding divestitures, was higher from strong trading and underwriting revenues that were partly offset by lower banking, insurance and commission revenue. The core Banking margin of 2.1% was down 35 basis points from last year. This was largely driven by higher balance sheet liquidity invested in low yielding…

Thank you, Raj, and good morning, everyone. I begin my remarks on slide 12. The Bank reported total allowances for credit losses $7.4 billion. That’s up from $5.1 billion two quarters ago, an increase of 45%. Over the same period performing ACLs increased 56%. To put this in context, total allowances provide robust coverage for our current estimate for future net write-offs through to the latter half of 2021. Turning to slide 13. The Bank reported provisions for credit losses of $2.18 billion in Q3, reflecting an increase of $335 million from the prior quarter. The PCL ratio increased 17 basis points from last quarter and 88 basis points from the prior year to 136 basis points. Over 80% of this increase was related to performing loans, mainly in international retail and related to the macroeconomic outlook estimated impact on future credit migration. Impaired PCL ratio at 58 points was stable. It was up only 2 basis points quarter-over-quarter and up just 6 basis points year-over-year. Moving to slide 14. Last quarter we stated that the COVID-19 pandemic and higher provisioning was likely not a one quarter event given its continued threat, its impact on the global economy, and of course, the resulting structural damage. With that in mind, I think, it’s important to understand what drove the quarter-over-quarter increase in total PCLs and the changes to our assumptions since the last quarter. First, our Q3 estimates reflect the increased economic impact from the later spread of the virus to Latin America and the Caribbean. And second, many countries around the world including Latin America, had expected to reopen their economies but were subsequently delayed. This also impacted our macroeconomic outlook. In addition to these developments, we have all exercised significant expert credit judgment to overlay model generated numbers in…

Thank you, Daniel, and good morning, everyone. To begin my remarks on slide 19, I would like to again thank our customers for their loyalty and understanding, and our employees for their continued hard work and dedication. I would also like to thank our shareholders for their support as we navigate this environment. It has been a trying time for all that we are beginning to see some positive signs which provide cause for optimism as we look ahead. I would like to frame my comments on our results today by looking back to our Q2 earnings call in late May and focusing on what has changed. At that time, the outlook was highly uncertain, lockdowns were strict, governments were introducing new policy actions almost daily, retail customer assistance programs for highly active and corporate customers have been actively drawing down on their loan facilities, which increased the risk-weighted assets. In this uncertain environment, the Bank was well prepared. We were operationally ready and transitioned quickly to remote work environments while 90 -- while keeping 90% of our branch networks open. In addition, we had completed all divestitures, which were part of our strategic repositioning. We were also well prepared for the sudden increase in market volatility by being prudent in the amount of market risk we were taking before the pandemic struck. Today, business conditions have begun to slowly improve across our footprint, although many challenges remain due to the timing and uneven impact of the recovery. That’s said, our outlook today is more positive and has improved. In Canada, progress in containing the virus has been steady with all provinces entering Stage 3 of the reopening. A significant amount of COVID-19-related losses in economic output have already been reversed. Household spending has returned to more normal levels. The…

Thank you, Brian. Well, 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. Operator, can we have the first question on the phone, please?

Thank you. [Operator Instructions] And the first question is from Ebrahim Poonawala with Bank of America Securities. Please go ahead. Your line is open.

Thank you and good morning. I guess, my question both for Brian and Dan is just around, one, potential display on the Pacific Alliance countries. But talk to us in terms of which country are you most cautious around when you think about credit and you flagged the unsecured portfolio this quarter? Just tell us where you -- we should expect the way you think that risk are being blindsided or highest level of risk on credit is within the four countries? And Dan, if you could just add some color to your guidance for lower PCLs, is there some cadence in terms of what we should expect impaired versus performing and the magnitude of decline we should anticipate? Thank you.

Hi, Ebrahim. Thank you for the question. I am going to ask Nacho to start off and then Dan or I might jump in after.

Thank you, Ebrahim. Look, let me give you my perspective of where we in Latin American countries. As Brian mentioned, COVID started later than in Canada, so there is a lag effect. But we are already seeing clear signs that the Pacific Alliance countries are in the recovering path and following the positive trend we are seeing in North America. Let me give you some examples. In general, commodity prices are important for the region and in Chile, for example, mining production is above last year and copper prices are above recovery levels. So exports of mining in Chile are 13% year-over-year, which is very positive. In Peru and Colombia, a good way to see the recovery is the electricity consumption. Due to the lockdowns, daily electricity consumption went down significantly around 30% in other countries or more and they are reaching pre-COVID levels. So this shows that the economy is coming back. In the case of Mexico, Mexico is the ninth manufacturing exporter in the world. So manufacturing is a very important industry and it’s really positive to see that half of the impact, sorry, of COVID has been recovered, the U.S. economy has reopened and reactivation -- value chains got reactivated. So I would like to highlight that this is due to the strong fundamental. These countries are managing comprehensive stimulus programs. They have the ability, the physical muscle to do it due to the low levels of GDP and they have had a very active monetary policy to support the recovery. Other measures are also important to highlight. In Peru and Chile, for example, governments have allowed workers to disburse up to 25% of their pension in Peru and 10% in Chile. This is a very material support of $20 billion in Chile and $10 billion in Peru that is helping former workers. So, overall, a -- there is a lag effect, but we are going to see an improvement in the economy. Maybe Daniel you would like to answer also from a credit perspective.

Yeah. Ebrahim, you asked about outlook where we go from here. I’d say in summary, that we are the high watermark and we are seeing the tide go up from here. In fact, we are going to see a total PCL to try significantly going forward. As I mentioned in my remark, we see the total PCL is going below the number that we report in the Q2 results and that will come from that because over the last couple of quarters we have increased our performing reserve by 56%. We have done at that number by looking both at our net write-off sort of bottom update in that analysis, a well as our top-down macroeconomic forecast which as we indicated remains skewed toward the pessimistic. We are getting that data from the expiry of our customers and the residual portfolio of our book being highly secured essentially our mortgage book gives us great confidence in that future outlook. Notwithstanding the positive macroeconomic indicators that Nacho outlined. So, overall, I think, we know that structural damage has been done to the economy. It’s going to require a lot of quarters to clean up from here, but we do view this quarter’s PCL as a high watermark. We see it decline substantially from here and we are well provision of the balance sheets to cover our current estimates to future net write-offs.

Thank you.

Thank you.

The next question is from Gabriel Dechaine with National Bank Financial. Please go ahead.

Good morning. I want to thank you first of all for slide 13 there’s some good data in there. A couple of questions about it though. First, the percent of people coming off of the deferrals that are current, 96% Canada, 89% International. Do you think that trend or that number is representative of what we should expect as there’s more expirees over the next few months? And then, second, in International, we see the percentage of deferral exposure that expired of 27% in International. I thought that would have been higher because a lot of the deferral there were for four-month periods, which probably would have got us into Q3. I am wondering if there were any extensions that you granted there or planned to in August?

Okay. Gabe, let me take that question starting off and I will hand over to Nacho for his view on IB. First of all, if you look at where we stand on the outlook on the deferral customer assistance programs from here in Canada, I think, the important thing to call out here is that the residual book that we have is 94% mortgages. So, these are high quality mortgages with an average loan to value 45%. High FICO score as effectively as a super prime business. So really, we are not very worried about that, a residual portion of that portfolio is effectively a small piece of current, you mentioned that was $200 million and then its prime auto. Again, we have got a very positive outlook on how that’s going to perform from here. So we are -- I’d say, we are relatively well-positioned and optimistic on the Canada portfolio. Your question on business mix driving different deferral expiries in International Banking. Here, I think it’s important to note that the deferrals were offered later…

Okay.

…in many of the geographies in international.

Right.

And even within international, there was a bifurcation between some of the countries in how they offered the programs. So if you look at Peru, for instance, we had a material decline in our balances of 40% versus on the other countries, which -- such as Mexico which entered later. I will let Nacho give some additional color there.

Yeah.

Well, the -- sorry, the inter -- if you can comment as well on the August experience, because more than half of those are expiring in August or through most of the month just if you see what -- if you can tell me what’s going on now?

Sure. Let me say and tell you that I am quite encouraged with these payment levels close to 90% of the $6.5 billion that have exited from the customer assistance programs, because as Daniel mentioned large portion of that is Peru, which is mostly an unsecured portfolio. So we are showing quite resilience. And also, I would like to highlight that those that are not in deferral are paying at similar levels to pre-COVID. So we expect and as you can see in this slide in the schedule, we are going to have in August and September the bulk of the deferrals program exiting. As you also highlighted, regulators have extended the option for customers to participate in the customer assistance programs as lockdowns also extended in the region.

I will probably have to follow up offline here. Thanks.

Thank you. The next question is from John Aiken with Barclays. Please go ahead.

Good morning. Daniel, when I look at the macroeconomic scenarios on slide 25, obviously, we are seeing some improvements across the Board in terms of the forecast for Canada and the U.S. in terms of the outlook. But can you give us some sense in terms of what changed on the International side between the two quarters, obviously, part of that is what drove the increase in performing loans. But also a commentary around how much that actually did drive the decreasing allowances this quarter, please?

Yeah. So, as I referenced, in Canada, of course, and in the U.S. with all of those very closely. We have seen macroeconomic data that’s better on acuity basis and you see that reflected somewhat in our forecast. Although, I will note again here that, we have over weighted our pessimistic scenarios versus our base case. We continue to have a negative perspective, so that we have conservative provisioning here. If you look at International, the change in the macroeconomic forecast there has been driven by the longer and extended impact of the lockdown measures that we had in those countries. Those countries are now coming out of those lockdown measures. We are seeing the positive return, our fast moving macroeconomic indicators are improving and were substantially back or in improvement path of much of our international footprint. But we were conservative in our provisioning and in our most affected countries took a negative outlook on these forward GDP projections.

Daniel, just so that I am clear, there was a move in the quarter again towards the pessimistic scenario?

We have maintained our overweight pessimistic scenario outlook. That is correct.

Understood. Thank you very much

Thank you. The next question is from Steve Theriault with Eight Capital. Please go ahead.

Thanks. Thanks again for the disclosure on the customer assistance programs. I probably would want to ask the question on International and cards in particular, Daniel. I have had lots of questions around the rest of PCL remaining elevated for a protracted period of time and not a bad guess if that were to come to path, this is a decent area of focus. So two-thirds of the book, is that right two-thirds of the book is under deferral and there’s $3.5 billion of exposure? I guess, maybe if you could give us a sense of how prudent you are being there in terms of outlook, it looks like if the percent current following deferral expiries around 87%, does that imply 135 delinquencies or loss rate? And just thinking that 90% of that is scheduled to be coming off by the end of the quarter, like, how meaningful could that be in terms of impaired or Stage 3 PCL? And how should we think about, I guess, how conservative rate are you being and how should we think about that and how concerned should we be about that International credit card book going forward?

Sure. So, the unsecured portfolio as we highlighted is primarily in Peru and Colombia. Those are the two geographies in International where our forward GDP and macroeconomic forecast has sequentially gotten worse and that reflects our optimistic perspective. And again, we have got some data that indicates and not just outlined an improving situation in some of that footprint, but we have intentionally taken a worse GDP forecast, so this is from a top-down perspective, macro perspective we have been conservative here, as I said, that’s been driven by the longer locked down. I’d say, as a general matter, we are pretty broadly satisfied with the credit quality of our book. We had 27% of the portfolio is in deferral or it’s still in the process. It’s performing in line with our expectations. 90% of the expired book as we said returned to current status. The residual portfolio is 555 mortgages. That’s got high loan to value of 48%. Many of our customers particularly in cards are still making payments to us even though they are in those deferral periods and we will have of those programs off the books by the end of October 31, we estimate. So, as we take a look at this, we benchmarked ourselves carefully to our peers. And if we look at the PCL increase on a year-over-year basis, what we have done versus local and International banks who are operating the same footprint, we have taken a PCL increase that’s in line with the peer group and that’s all the sensitive fact that we have a business here that’s more indexed to commercial and corporate business, which as you know has a better experience and a lower default rate in these situations. So we think we are very well provided for as we look across the book. Maybe a different way to look at it and sort of the back of the envelope math for you, if you look at our total coverage portfolio that’s in deferral across the all bank level today, when you look at the allowances for credit loss that we have on that, we are 50% covered. And that doesn’t include factoring the percentage of people that are currently payment or that will be expected to exit. So that’s a very good coverage ratio.

Yeah. Steve, its’ Brian. Just to give you a context is that, not all markets are created equally. And if you look at Chile and Mexico, for instance, the composition of our portfolio would look more like Canada in terms of big mortgage book, auto lending and less unsecured lending. Just in terms of the economic development and the progression of economic development in Peru and Colombia are different. You don’t have the big mortgage market. The mortgage market in Peru is in its nascent stage. And so people rely on personal loans, which we adjudicate appropriately and are -- and the fees and the loss rates, the return on that business is a very good return, but it’s you are going to have some collateral damage in a pandemic like this. But my point is that people need that liquidity for their day-to-day life. This is 40% of the economy in Peru is informed. So, people in a time of crisis tend to sock away cash. That’s been our experience put it under the mattress and it comes out and we are seeing that in our repayments here as people come out of deferral. So we are very encouraged about the consumer behavior in our international book and we expect that to continue.

Thanks for the color to you both.

Thank you. The next question is from Scott Chan with Canaccord Genuity. Please go ahead.

Good morning. Two-part question for Nacho on international, I guess, you called that consumer loan growth was flat quarter-over-quarter, but commercial was strong sequentially again. Maybe just why commercial was strong and maybe the outlook on both those segments? And how much of the commercial, I guess, the lower margin commercial versus retail impact in the NIM in the quarter versus liquidity? Thanks.

Thank you.

Sorry.

Thank you. Look, let me give you my perspective on the performance of the quarter in general. As we have said, our earnings were low mainly the fact by elevated PCLs and we have talked about that. But we -- in terms of the topline, our revenues decreased 4% during Q-over-Q reflecting a full quarter of COVID. Most of the impact really you see is driven by retail transactional and credit card fees that we expect will gradually increase and we also experienced some margin compression. But I would like to highlight that this is mainly driven by $6 million of excess liquidity due to government funding of the COVID Assistance Programs and also due to the business mix that you say commercial growing much faster than retail. Asset and deposit growth were strong Q-over-Q and our loans increased 4% driven by 8% growth in commercial and were flattening retail and deposit growth was 4% strong in all business lines. So this is a positive trend that we are reflecting future earning growth. I would also like to highlight that our expenses also reduced 4% in line with our revenue reduction. And in fact in the past two quarters, we have reduced $100 million in expenses and we continue to see many opportunities to improve our efficiency. If you put it all together including this low quarter, year-to-date our pre-tax pre-provision is just 2% down and our operating leverage is flat. And I would like to leave you with three messages. First, we have reshaped our footprint for in our business. We feel we are in the right markets and we are committed to our International Banking strategy. Second, we expect this to be the quarter with the highest PCL in International Banking. And third, you will see earnings improving in Q4 and beyond.

Let me just make a comment on NIM since you asked about it. Overall, I think, International NIM forecasting and trying to breakdown this business is complicated. There’s a number of diverse economies we have inflation driven pricing and so on. So a number of factors move them in even in normal times. Also since it’s about 20% of all bank assets it actually doesn’t move all bank NIM as much. For example, it’s 11 basis points impact this quarter and 7 basis points when you look at it quarter-over-quarter. But having said that, International Banking NIM compression is completely driven by liquidity when I look at a quarter-over-quarter, of the 28 basis points compression that we had 20 basis points relate to the liquidity of excess liquidity we have had to carry to support our customers and the best like you pointed is due to high commercial and most secured retail growth compared to the previous quarter. And even looking forward, we expect to see some level of margin compression in International Banking in Q4 as well, certainly not as much as you see in this quarter. And then we expect that to improve as the mix start shifting back to what we would call normal levels where our retail growth will come back once customer activities comes back across the International Banking footprint.

Very helpful. Thank you very much.

Thank you. The next question is from Paul Holden with CIBC. Please go ahead.

Thank you. Good morning. So, I want to ask I recognize your CET1 capital ratio looks quite strong now. I am wondering if you have done some additional work on the impact of credit migration over the coming 12 months, 18 months on the ratio. Could you provide any guidance or quantify sort of the impact for us that would be helpful?

Sure. Paul, it’s Raj. So I will take it back and help you with that question. As you pointed out, CET1 ratio is up 40 basis points quarter-over-quarter at 11.3%. A couple of factors, good internal capital generation, although, we had high loan loss provisioning and lower risk-weighted asset as we got to pay down from particularly our corporate draws which used up about 40 basis points of capital just last quarter. So we have seen some good come back of 20 basis points this quarter through the reduction in RWA in our Business Banking book and counterparty credit was also reduced because of we had a similar levels of credit spreads that moved in Q2. Those have come back as well that give us about 12 basis points back. So part of that is, certainly, as you look forward, in this quarter we absorbed migration of about $4 billion relating to our Business Banking book and we actually saw some positive or favorable credit migration when you look at the Retail book. And there are a few factors that are influencing that, lower delinquency rates in each of the Bank portfolios whether you look at mortgages, credit cards, auto loans, the entire gamut. But also within the credit card portfolio, because you have credit scoring that comes into our models and so on simply because of the government stimulus, the deferral programs that have been in place particularly in Canada, as well as lower consumer lending, I am sorry, consumer spending, I should say, also contributed lower revolving credit utilization rates. So really the PDs on our Retail book dropped if you look quarter-over-quarter in our ARB book. It dropped from 91 basis points to 78 basis points in one quarter. So, that’s a reason you see favorable migration. To answer your question on stress testing, like we talked about last quarter, we do multiple stress tests particularly in environments like this. You can call it the U-shaped, V-shaped recovery, L-shaped recovery and so on. But the most likely scenario we see, excluding the quarter’s migrations which has already gone from Business Banking, we think it will be around the 40 basis points range. And if you look at our capital ratio at 11.3%, it will continue to grow because most of the write-offs are really going to come in Q1, Q2, particularly in the retail book. We think it will be completely absorbed by the internal capital generation that we expect to see since volume growth is going to be slightly lower compared to our normal growth rates, and that should help us and keep this capital ratio definitely above 11.3% we think as we go forward in Q4 and as we talk in Q4, we will give a better understanding of how this might play out to Q1 and Q2 in the rest of next year.

That’s very helpful. Thank you.

Thank you. The next question is from Doug Young with Desjardins Capital Markets. Please go ahead.

Hi. Good morning. Just wanted to go back to the performing loan bill this quarter and it seems like most of the bill was related to migration, didn’t seem like the change of scenarios of your OSFI. And so I just want to understand better how you went about looking at this migration, is this mostly a management overlay, is this something where you went out over the next year or so and looked at, as these deferrals come off, what delinquencies would be and then kind of bring it back today to what the ACL would be?

Yeah. Thanks, Doug. So, you are absolutely right. The credit quality has driven a swing in PCLs kind of quarter-to-quarter basis of about $350 million, whereas, in fact, on a quarter-to-quarter basis, the macroeconomic OSFI was down about $50 million. So this quarter has really been all about seeing the impact -- the structural impact of this portfolio -- this is part on our Retail portfolio and our Corporate and Commercial Banking Business where frankly it’s a good new story there and being able to incorporate that data on customer exits, as well as the remaining portfolio that we have in -- and the quality of that in our estimate going forward. And you are right, in order to make that assessment, we have had to execute significant extra credit adjustment in order to make that happen. Because the macroeconomic factors, we haven’t -- we don’t have employment driving income levels anymore. We have government assistance programs in many cases driving income levels. So we have used that as an overlay in terms of thinking about how we look in net write-offs before. But from an overall perspective, we have assumed a significant increase in net write-off levels versus pre-COVID levels and we have looked out five quarters ahead making that assessment and taking that into our allowances for credit loss. And we have done that both by incorporating that top-down data, that bottom up real experience from our customers, as well as particularly in IB looking at the outside in perspective from our peer group.

Daniel, is there any way to quantify that, I mean, when we look at what you have said in terms of your experience for stuff coming off deferral rate now. I think it was 89% or 90% is staying current after they come up in international and was higher up in 90s in Canada. Is that what you are expecting or are you expecting it to actually get worse from here as you build out these performing loan allowances?

So two things, first of all, I’d expect that to be at least as good going forward. But secondly, and I think more importantly, let’s look at the credit quality of the remaining book of business, because those expirees have related largely to the unsecured book of business, which are shorter deferral periods. So we have had about 60% about two-thirds of our expirees in Canada related to the unsecured book of business, now in cards, we are down to $200 million. So, if you look at the impact of that on PCLs which is really what we are all after here, we have a, I will say a cautiously optimistic perspective on that experience going forward given the remaining quality of the book. As I said, it’s respectively a super prime remaining book of business in Canada that’s got very low LTVs. So while we have taken appropriately pessimistic perspective on the overall provisions, we have high confidence in the high watermark statement we made before.

And then, just lastly, the credit card about $3.5 billion in International that’s on deferral. You said that there’s a good chunk that’s still current and making payments. Can you quantify like how much of that like how much of those clients are still making payments?

Yeah. So, in International the current payment rate is remains significant and we are tracking that very, very closely.

But you haven’t quantified that.

Sorry.

You are talking about customers in deferral as your question. Yes. We have seen around one-third of our customers that remain -- continue to pay even when they are in deferral.

Okay. Great. Thank you.

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

Hi. Thank you. I am going to stick with Dan and just to follow-up here on your answer just now to at least as good, which is a little surprising to me. And your slide 16 is very useful. Thank you again for this slide and it will help me frame my question. So if I look at Canada, for example, and I look at the -- last call, the current quality of deferral expiry. And if I think about mortgages, somebody who is off expiry has come off early, so they probably didn’t need the deferral anyway. When I think about credit cards and personal loans, I mean, you have got a high current following deferral, but those are smaller payments and many of the people are probably getting served payments. So the issue, Dan, is really as we look forward, the biggest payment that people have in their lives is typically the mortgage. So what I am interested in understanding is sort of how you see this playing out in October or Q4 when they come off deferral if they have got a mortgage, and they are still unemployed and serve is being wound down. Could you provide some insight as to how many people in that mortgage book are unemployed have served and potentially other loan balances were they would have difficulty making those payments once that big deferral of the mortgage comes due. And maybe, perhaps, you provide some data on this credit cards, you saying they are current, but how many are actually making full payment versus minimum payments? Thank you.

Yeah. So on the current portfolio the end of your question there, we still have about 70% of our portfolio maintaining current position on the card balances in Canada and that’s consistent with our experience through this -- since the start of this. So the quality of that remaining credit card portfolio, although as I said were down $200 million has remained consistent from a payment perspective. Your question really revolves Darko around what happened on transition some of these government assistance programs roll off and what is now October given the additional extension that we have had in Canada and transition into the revise, the EI assistance programs that we have in Canada now that we are recently announced and there is a significant $37 billion of assistance in Canada. And here significantly that has been extended not only to those in the sick leave for instance, but also to those that only have a 120 hours of employment in the last year, that’s a material piece of the assistance that we have in Canada. So we think that will that addresses many of the questions we had prior about some of the challenges about transition of those served payment going forward. You are right that the bigger portion of the payment amount is in the mortgage portfolio. But here again I want to come back to, I think, what we are all focused on today is the provision for credit loss outlook and when we are dealing with the mortgage portfolio that’s super-prime effectively another 45% LTV we don’t see a significant impact.

And Daniel, maybe I will just follow. Darko, it’s Dan Rees from Canadian Banking here. Clearly a 99.4% current following deferral expiries is a tremendous result so far. For those still in deferral, the FICO score is close to those that are not in deferral. So in general, our mortgage book sits around 800, and those in deferral are above 750 or higher. We have identified in June based on seeing served data and EI data, the customers we would qualify or characterize as vulnerable, through the course of July and into August we will have contacted all of those mortgage customers two months ahead of their scheduled prepayment and are working with them on a case-by-case basis and we are encouraged by what we saw through the month of August.

And what would the proportion be of those that are vulnerable, Dan, and could do you have a similar statistics for the international?

I would say the proportion would be less than 10% of those that are still in deferral that we would consider to be vulnerable. The size of their payment, whilst significant is not in comparison with the rest of their credit capability. So when we look at that tail if you like, we get comfort, especially to Daniel’s point around LTV, should the consumer decide that they are not capable of continuing, the mortgage will move in we will exercise our right, but that is a possibility. On the mortgage side and in International, Nacho?

Well, what we are seeing in International being that each -- that the customers are also similar and this is an option. It’s encouraged for regulators broadly. And I would like to highlight that in -- this is in the memory of our customers. Major events in our region like earthquakes in Chile, Mexico, hurricanes in the Caribbean have allowed us to provide massive support similar to what we are seeing. So what I can tell you is that, this level of payments that we are seeing on the exited portfolios and the assistance programs are on target, and these are quite encouraging and we hope we have now an important exit the portfolio and they continue at the same pace. We have increased our allowance for performing loans, $1 billion in two quarters in International Banking and our ACL today is more than 2 times or net over the last year. So we feel we are well provisioned with information we have today.

Darko, it’s Brian. Just one thing that Nacho in answering another question from somebody else earlier and it doesn’t get a lot of color here, but the release that the Chilean Government and the Peruvian Government have given for people to take money out of their pension plans, we can argue whether that’s good policy or bad policy. But that’s closer to the Government of Canada, saying you can take a $100,000 tax rate out of your RSP to get on if you like, these are big, big programs for these countries and will bode well for consumers in terms of how they handle it. I think, I -- so I just wanted to emphasize that.

Yes. They represent 2 times to 3 times in monthly income of our average work in these countries on.

Okay. Thank you.

Thank you. The next question is from Mike Rizvanovic with Credit Suisse. Please go ahead.

Hi. Good morning. Probably a question for Nacho, I just wanted to go back a couple of quarters on the guidance that was provided. The earnings power the international business post dispositions. I think the number was $525 million. Obviously it’s a much different environment now. But is that something that you could potentially get back to maybe by the end of fiscal 2021 or is that more of a fiscal 2022 story when we think about that segment’s earnings power without the noise from elevated PCLs.

Look. Thank you for your question. I am quite confident that post-COVID these countries which show another cycle of very high growth and this is because of the structural characteristics of the countries, 250 million population, low levels of banking penetration. Fundamentals matter and they have managed and weather well COVID. So, for sure 2021 is going to be a transition year. But I have no doubt that the banking industry will resume double-digit growth post-COVID and I am quite confident of these targets for International Banking as a medium-term target. Of course, highlighting that we are still going through difficult months and we still have to see let’s say a consistent recovery and growth.

Okay. Thanks for that color. I had a really quick numbers question as a follow-up on the customer assistance programs slide. So, in the footnote it says the Canadian payments percentage includes accounts that have not yet completed first billing cycle since expiring. So what I am wondering is that 93.6% in the right column that’s quoted, how would that be -- how much lower would that potentially be if you excluded or if you included the accounts that have come off deferral that have actually gone through a first billing cycle since the deferral expiry?

Hi. It’s Dan Rees here from Canadian Banking, I don’t have that number at hand, but it’s not a significant difference. We are simply sharing that footnote for being to reflect the point that’s when the loan expire it takes a full 30 days for the payment to become due in most circumstances, that’s all. I wouldn’t read much into that.

Thanks, very much. Appreciate it.

Thank you. The next question is from Mario Mendonca with TD Securities. Please go ahead.

Good morning, Dan. If we could go back to the comments you made around credit. You said that the estimated future credit migration -- you built an estimated future credit migration out to the latter half of 2021. I would have expected that that kind of credit migration contemplated that it would have had a similar effect on book quality. Specifically what I am getting at is, I would have expected the probability of default to have moved materially higher across your loan book including consumer, but there does appear to be a disconnect between what you are building in from a credit perspective and what we have seen so far in terms of book quality. I guess my question is, is that still to come like updates to your probability and results across all your loan books, corporate, commercial, and consumer. Are those still to come in subsequent quarters or are you done?

Hey, Mario. That’s right. I think you are referring to book quality, which we put out as part of our regulatory sub back correct?

Yeah.

Okay. Yeah. So, yes, the capital will lag like I mentioned earlier, because of these deferral programs, it started as far as business lending grows. I mentioned we got $4 billion of risk-weighted assets. So that will be kind of in sync with what you would see for loan loss provisioning. But certainly, the loan loss provisioning on the retail book is coming in much earlier because of IFRS 9 performing loans requirement and the capital impact of it will be delayed as write-offs start coming in Q1, Q2, and these portfolios actually migrate to a higher or lower PD, I should say, higher PD and a lower quality, as well as they have entered the impaired and that will reflect in the capital, which is why I said, about 40 basis points could be the impact of migration to an earlier questions, but that will come through, I would say, early part of 2021 as these programs play itself out, but you are right, it’s a lag effect.

So would I be correct in saying that the probability of default, those numbers have been updated for corporate and commercial and retail is just, as you suggest, will come through later. Is that correct?

Completely correct, Mario. That’s why I referred to the retail PDs if you look at ARB portfolio and the Bank sub back has dropped from 91 basis points to 78 basis points and that will come back to 91 being a more normal and perhaps might go higher to depending on how these portfolios might bid in future quarters.

And you wouldn’t expect, sorry, go ahead.

Mario, Daniel here. We have gone through and we have taken a full bottom of position in the whole corporate and commercial portfolio and re-rated everything that’s in there as necessary. We found frankly only 4% of our portfolio needed re-rating and of that 80% was only one credit notch. So that shows the resiliency of our portfolio, which is 85% investment grade. So that’s performed very well. We are very pleased with that.

And then your comments there specifically related to corporate and commercial?

Yes.

Thank you.

Thank you. The last question will be from Sohrab Movahedi with BMO Capital Markets. Please go ahead.

Okay. Thanks. I just wanted to go back to Nacho, get a sense, Nacho, as to what if any changes have been made to risk appetite towards the business in the region where the growth is likely to come and whether or not there has been a shift and as Dan’s forward looking an expert judgment assume as skewed towards more of secured book or is it more of the same and whether or not from business perspective, the trend in expense management that you have been highlighted can persist or are they amended to test to how much lower expenses can go from here in the International segment in particular? Thank you.

Thank you. Thank you very much, Sohrab, for your question. Well, it’s already happening and I expect that in the first -- in the next few months, we will have more opportunities to grow in commercial and the retail secured business. They have -- they are more resilient to the recession and the economies are back to a growth path. But eventually as we have mentioned before eventually we expect that both segment will start to grow in a much more balanced way and our risk appetite has been adjusted accordingly taking some lessons from this event. But we remain highly confident on our strategy and the risk appetite that will gradually adapt to the conditions of the markets. I would like to say that there’s a significant dip and acceleration. We have been to help our customers experiencing the very difficult circumstances accessing their bank, their accounts remotely, and therefore, this is helping us invest, achieve a lot of engagement in digital channels, and therefore, we continue to see as we have seen significant opportunities to improve our efficiency and continue this trend and the track record we have in solid expense management Sohrab.

Okay. So, just…

And Sohrab, just on your question on factoring and the changes in strategy that Nacho was looking at the margin going forward, we have not factored any of that into our extra credit judgment, we have run it off the current portfolio as it is.

So just Daniel to me to be crystal clear on that at least for the foreseeable future growth in commercial and better call it secured stuff would be an improvement so to speak relative…

Yeah. That would be improvement versus…

… to where you were you book quality estimates are.

That would be improvement versus base case estimates case today. That is correct.

Okay. Thank you.

Okay. Thank you everyone for participating in our call today. On behalf of the entire management team, we want to thank our investors and analysts for participating in our call. I also want to thank all of our employees for their continued focus and hard work to deliver to all of our stakeholders and our customer and shareholders for their loyalty and support. We look forward to speaking with you again at our Q4 2020 call on December 1, 2020. Have a great day.

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