Currently, analysts expect Canada’s six largest banks to build more credit loss provisions, as these financial institutions are nowadays bracing for uncertainty related to the tariff threat from the United States, which could impact earnings in the first quarter of 2025 and beyond.
According to media reports, banks in the mentioned country have already begun to put aside more funds to cover any souring loans due to continued high Canadian unemployment, which is a cause for concern among investors, despite some recent robust economic data. It is worth noting that the increase in the mentioned funds has a negative downward impact on the profits of financial institutions.
President of the United States Donald Trump’s threat to impose 25% tariffs on all Canadian non-energy imports starting in March means that lenders are likely to set aside yet more rainy-day funds. At the same time, banks are expected to benefit from the boom in capital markets activity and strong wealth management earnings in the first quarter of 2025.
RBC Dominion Securities analyst Darko Mihelic expects large lenders to build larger performing provisions for credit losses than initially forecast. It was also noted in this context that pessimistic scenarios can become even more pessimistic.
The current forecasts suggest that loan loss provisions jump between 6.4% for the Royal Bank of Canada to as much as 80% for the Bank of Montreal. CIBC is expected to demonstrate a fall in provisions of 0.7%. These forecasts are based on LSEG data.
Scotiabank analyst Meny Grauman said the potential impact of tariffs on all of the key earnings drivers is likely to dominate the earnings calls this quarter. It was also noted that one main area of interest will be how banks expect provisions to reflect tariff risks.
Four of the big six Canadian lenders, including RBC, Scotiabank, CIBC, and National Bank, have lost between 2.3% and 6% on the Toronto Stock Exchange since the beginning of the current year. At the same time, TD Bank and BMO have gained 12% and 2.5% respectively.
As we have reported earlier, Real Estate Loans Provoke Doubts in Canadian Banks’ Profits.
