Feb 28 Reuters Bank of Nova Scotia Scotiabank reported a lower firstquarter profit on Tuesday, as a lull in its investment banking division dented income from its capital markets unit and compelled the Canadian lender to set aside higher provisions.

Net income, excluding oneoff items, came in at C2.37 billion 1.75 billion, or C1.85 a share, in the three months ended Jan. 31, compared with C2.76 billion, or C2.15 a share, a year earlier. Analysts on average had expected C2.03 a share, according to Refinitiv data.

Canada39;s central bank over the past 11 months has lifted interest rates at a record pace to 4.5 to tame inflation, which was 6.3 in December, still well above the bank39;s 2 target. Last month, the Bank of Canada said it would hold off on further moves to let the effects of past rate hikes sink in.

Scotiabank booked provisions of C638 million, up from C222 million a year ago, as it braces for increased odds of more loan defaults in a rising interest rate environment.

But net interest income, which rose nearly 5 to C4.57 billion during the threemonth period ended Jan. 31, has been a bright spot so far as the relentless monetary policy tightening campaign raised interest rates at the fastest pace in decades and expanded the margins banks earn from cost of borrowing and rate of lending.

Canada39;s thirdlargest lender reported overall net profit of C1.77 billion, or C1.36 a share, compared with C2.74 billion, or C2.14 a share, last year.

Rival Bank of Montreal…