The country’s six largest lenders release their fiscal year-end earnings this week.Adrien Veczan/The Canadian Press
Canada’s biggest banks are expected to post a boost in earnings even as the U.S. trade war and economic uncertainty weigh on borrowing among consumers.
Canada’s six largest lenders release their fiscal year-end earnings this week, and analysts expect higher fee-based income to prop up profits after a year of strong financial markets and share price volatility.
“We expect another solid quarter from the large Canadian banks to end a very strong year, helped by still-elevated capital markets, which should land close to record levels,” Scotiabank analyst Mike Rizvanovic said in a note to clients.
On Tuesday, Bank of Nova Scotia BNS-T will be the first major bank to release earnings for the three months ended Oct. 31. Royal Bank of Canada RY-T and National Bank of Canada NA-T will report results on Wednesday. Toronto-Dominion Bank TD-T, Bank of Montreal BMO-T and Canadian Imperial Bank of Commerce CM-T will wrap up earnings week on Thursday.
Analyst expectations are wide-ranging for the fourth quarter, estimating that earnings across the banks could climb between 12 per cent to 24 per cent on average.
Canadian bank stocks have surged by 32 per cent this year, outperforming the S&P/TSX Composite Index’s 27-per-cent climb.
Top picks in bank stocks from a Scotiabank analyst as earnings reports imminent
The share prices have also been boosted by heavy buybacks. The banks collectively purchased almost $45-million of their own shares in the recent quarter, marking one of the most active periods on record, according to National Bank analyst Gabriel Dechaine.
“With the group trading at lofty valuations, we question whether this trend can or should continue,” he said.
Analysts also expect growth in provisions for credit losses – the money banks set aside to cover sour loans – to moderate from their upward trajectory in recent years amid concerns over an economic downturn and potential wave of defaults that did not materialize. The provisions are a closely watched measure of financial stress among customers. Higher reserves also stifle profits at the lenders.
“Despite macroeconomic uncertainty throughout the year, credit has largely remained sturdy,” Canaccord Genuity analyst Matthew Lee said in a note.
“While most management teams have suggested that impairments will peak in the first half of [2026], we believe that the group will benefit from an improving commercial and corporate banking environment, helping to offset an increasingly stressed consumer.”
Analysts say that these bright spots could be slightly offset by slower loan growth as consumers face persistently higher costs and interest rates.
In August, overall loan balances grew about 5 per cent year-over-year across the five biggest banks, according to regulatory data, “reflective of paused investment/borrowing activity given ongoing tariff-induced macroeconomic uncertainty.” In recent years, loan growth has typically ranged in the double-digits.
“Muted loan growth is expected to continue in [the fourth quarter] and remain in the mid-single-digits,” BMO analyst Sohrab Movahedi said in a note.
Bank regulator proposes loosening rules to stimulate corporate and real estate lending
The banks are still sitting on billions of dollars in excess cash that could be redeployed.
CIBC analyst Paul Holden expects the group to have a common equity tier 1 (CET1) ratio – a measure of a lender’s ability to absorb losses – of 13.5 per cent on average, well above the regulatory minimum of 11.5 per cent of risk-weighed assets.
“Excess capital is a store of additional earnings power,” Mr. Holden said. “The banks are sitting on excess capital, and given muted loan growth CET1 ratios are more likely than not to increase [quarter-over-quarter].”