(April 25 – 16:00 ET) – Merrill Lynch says that credit concerns are weighing on Canadian bank stocks once again.

Merrill says that Bank of Nova Scotia has been hardest hit with “credit concerns in Argentina, and the potential for contagion effects in Brazil and elsewhere”, hampering the stocks.

Scotiabank accounts for about 45% of the credit exposure of Canadian banks to Latin America, including about $1 billion worth in Argentina, $1.08 billion in Brazil, as part of $4.8 billion in total exposure to the region. “However, we believe that much of this portfolio is still in mark-to-market positive territory, given its low cost base,” Merrill says.

Nevertheless, it concludes, “the Argentina jitters raise concern that Scotia can achieve its year-end target of $250 million in net non-accrual loans by year-end without additional loss provisions — this would put 2001 EPS estimates in jeopardy.”

Merrill says that Bank of Montreal has the second-highest exposure, at about $2.4 billion, although most of this is in Mexico, which is perceived to be much safer. Royal Bank, TD Bank and CIBC appear to have minimal exposure.