Bank of America Securities downgraded the Bank of Nova Scotia (NYSE:BNS), known as Scotiabank, to Neutral from Buy as its operating outlook shifts from increased trade tensions.

Bank of Nova Scotia (NYSE:BNS) shares dropped 1.6% in Monday morning trading, a steeper decline than other Canadian banks. For example, Toronto Dominion Bank (TD) stock fell 0.6%.

The bank's heavy exposure to Mexico and Latin America, below-average CET1 capital ratio, and risk tied to its turnaround efforts weigh on Scotiabank's (BNS) outlook, analyst Ebrahim H. Poonawala wrote in a note to clients.

"While no bank will be immune to slowing GDP growth or from a potential recession, we see a relatively narrow path for Scotia to outperform in this backdrop," he said.

BofA's meetings with BNS management indicate "stalled customer activity, as businesses await clarity on US tariffs and potential for policy actions from the new (Canadian) government following federal elections on April 28," Poonawala added.

Regarding Scotiabank's (BNS) business in Mexico and LatAm, the BofA economics team has downgraded its Mexico GDP outlook to 0% growth.

BofA's Neutral rating on BNS aligns with the SA Quant rating and the average SA Analyst rating, both at Hold, while it diverged from the average Wall Street rating of Buy.