(Reuters) - Canada's Bank of Nova Scotia and Bank of Montreal on Tuesday beat analysts' expectations for quarterly profit driven by strong income from capital markets and wealth management businesses.

Lower interest rates have increased appetite for mergers and acquisitions while less regulation, lower corporate taxes and a broadly pro-business stance in Canada's southern neighbour are expected to boost activity this year.

The wealth management business, a capital-light and fee-based business, has also boomed recently, powered by a rise in the number of high net worth individuals and increasing investments. 

The banks, Canada's third and fourth largest, still set aside large sums to shield against bad loans in a challenging environment amidst trade tensions between Canada and the United States, a key market for the lenders. 

U.S. President Donald Trump has threatened to impose a 25% tariff on all non-energy Canadian imports starting in March. 

Scotiabank said its provisions of C$1.16 billion ($813.81 million) were partly due to uncertainties related to the impact of tariffs on Canada and Mexico. Analysts were expecting provisions of C$1.12 billion, according to LSEG data.

"We are well positioned to compete and grow in this dynamic operating environment," BMO's CEO Darryl White said in a statement. 

The lender, which had said its credit issues would normalize in 2025, recorded provisions for credit losses of C$1.01 billion, lower than analysts' expectations of C$1.14 billion.  

Both BMO and Scotiabank have looked for expansion opportunities outside of the Canadian market, largely dominated by the Big Six banks, entering markets in other parts of North America.

BMO has expanded on the U.S. West Coast through its acquisition of Bank of the West. 

Under CEO Scott Thomson, Scotiabank changed focus to push funding to stable, lower-risk countries, making a bet on the North American trade corridor.

The plan focuses on growth closer to home, from the province of Quebec to the United States and Mexico. As a part of the strategy, Scotiabank sold its Colombia, Panama and Costa Rica operations to Banco Davivienda and bought a roughly 15% stake in U.S. regional lender KeyCorp. 

On an adjusted basis, Scotiabank earned C$1.76 per share, compared with analysts' estimates of C$1.65, according to LSEG data.

It recorded an impairment charge of C$1.36 billion due to the sale of Latin American assets. 

BMO reported adjusted earnings of C$3.04 per share, beating the average estimate of C$2.41. 

($1 = 1.4254 Canadian dollars)