Scotiabank Canadian Legislative Covered Bonds Presentation

Canadian Household Debt Household debt has been increasing since the mid-1980s Low interest rates, demographics (including immigration), financial innovation and shift in consumer attitude/behaviour Debt increase has largely been driven by mortgage debt (represents ~72% of total household credit) Household debt to disposable income is only one metric to analyze While debt growth is not fast by historical standards, income growth has not kept up, leading to increasing household debt to income ratio Household debt to income ratio mixes a balance sheet measure "debt" with an income statement measure "disposable income". Borrowers are not expected to pay off their debts with one year's income Other considerations regarding consumer indebtedness and consumer resilience to shocks: Housing affordability - Mortgage debt-service ratios are in line with historical averages at the national level Interest and principal mortgage debt payments steady at ~6% of disposable income since 2008 Consumers prudently taking advantage of low rates to repay more principal ☐ ■ Net worth – Net asset levels (assets less debt) are at an all-time high of more than 8 times disposable income ■ About half of these assets are financial (not real estate) Asset growth has outpaced debt growth Interest rate shocks - Despite expectations for higher rates, there are mitigating factors ■ Canadians have substantial equity in their homes The majority of mortgage holders are locked in at fixed rates, with the 5-year term the most popular ■ Variable rate borrowers are qualified at the 5 year posted rate to provide a buffer against interest rate shocks. These borrowers have the option to switch into fixed rates Unemployment rate - A key driver of delinquencies and losses that determines borrowers' ability to pay debt ☐ Levels are expected to remain fairly stable over the next 2-3 years 20 Scotiabank®

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