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Loan Portfolio Management

Mike Aglialoro, Managing DirectorHead of Loan Portfolio Management

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LPM’s Objective

• Committing capital to clients who offer the highest ROEE

• Reducing hold levels to concentrated borrowers and industries

• Assist in managing the loan portfolio by hedging and selling migrating credits

Make Scotia Capital a more efficient user of capital by:

Capital Allocation

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Full Coverage of Scotia Capital’s Loan Portfolio

• Established January 2002 to manage the U.S. loan portfolio

• 11 individuals now managing the entire Scotia Capital loan portfolio

• Along with Credit Risk Management, LPM has become a “second set of eyes” in analyzing a credit. This helps ensure that we are committing to the:– right transaction– at the right hold level– offering the Bank the right return

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Making Better Credit Decisions

• Sophisticated models and information systems allow us to analyze clients on a consistent basis– Reliable inputs help us make better credit decisions

• As our models have become more sophisticated, LPM has helped – Enhance the depth of our bankers with regard

to active portfolio management – Introduce a more market focused view

of our credits

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Key Activities

• LPM provides an opinion on all new transactions as well as increases and renewals to existing transactions

• On an annual basis, we provide opinions on transactions representing over 30% of the portfolio:– re-price entire relationships to market– manage our hold levels to within limits and guidelines

• Hedge and sell migrating and concentrated credits

• Actively work to reduce the U.S. Exit Portfolio

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LPM Value Added

• Whether analyzing a new transaction or monitoring an existing exposure we spend most of our time focusing on levels and trends in:– Default probabilities (KMV EDF’s)– Credit spreads in the credit derivative and bond markets– Secondary loan prices– Equity prices

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Market and Relationship Focus

• Measures clients on ROEE and on a relative value basis

• Prospective opportunities compared against selling credit protection or purchasing a company’s bonds

• Allows the Bank to allocate capital efficiently and to ensure that we are pricing our relationships correctly

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Trends in Credit

• Default probabilities (KMV EDF’s) peaked in October 2002

• Since that time, the average EDF of our portfolio has decreased over 50%

• This improvement in the average EDF of the portfolio is corroborated by the improvement in credit spreads in the market– TRAC-X 100, is an index that represents the 100 most

liquid names trading in the credit derivatives market

– Goldman Sachs USD High Grade Spread Index

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Trends in Credit

Source: TRAC-X 100

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Trends in Credit

Source: Goldman Sachs USD High Grade Index

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Summary

• Important component in providing discipline to the loan approval process

• Full coverage of Scotia Capital’s loan portfolio

• Proactively manage migrating credits

• Market & relationship focus

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This document includes forward-looking statements which are made pursuant to the "safe harbour" provisions of the United States Private Securities Litigation Reform Act of 1995. These statements include comments with respect to our objectives, strategies, expected financial results (including those in the area of risk management), and our outlook for our businesses and for the Canadian, U.S. and global economies. By their very nature, forward-looking statements involve numerous assumptions, inherent risks and uncertainties, both general and specific, and the risk that predictions and other forward-looking statements will not prove to be accurate. The Bank cautions readers not to place undue reliance on these statements, as a number of important factors could cause actual results to differ materially from the estimates and intentions expressed in such forward-looking statements. These factors include, but are not limited to, the economic and financial conditions in Canada and globally, fluctuations in interest rates and currency values, liquidity, regulatory developments in Canada and elsewhere, technological developments, consolidation in the Canadian financial services sector, competition, judicial and regulatory proceedings, the possible impact of international conflicts and other developments including terrorist acts and the war on terrorism, and the Bank's anticipation of and success in managing the risks implied by the foregoing. A substantial amount of the Bank's business involves making loans or otherwise committing resources to specific companies, industries or countries. Unforeseen events affecting such borrowers, industries or countries could have a material adverse effect on the Bank's financial results, financial condition or liquidity.

The Bank cautions that the foregoing list of important factors is not exhaustive. When relying on forward-looking statements to make decisions with respect to the Bank, investors and others should carefully consider the foregoing factors, other uncertainties and potential events. The Bank doesnot undertake to update any forward-looking statements, whether written or oral,that may be made from time to time by or on behalf of the Bank.

Forward-looking statements