Not with a bang
Canada’s big banks to end strong financial year with a ‘whimper’
Canada’s biggest banks are expected to close out a strong financial year that was helped by interest rate hikes and favourable credit conditions with a “whimper” of a quarter.
The Bank of Nova Scotia is the first of its peers to report its earnings for the three months ended Oct. 31 on Tuesday, and the quarter is expected to provide a solid but quiet end to a year of strong growth and earnings “well above” estimates from 12 months ago, CIBC Capital Markets analyst Robert Sedran said. “Ending the year with a whimper may be an overstatement given the still strong (year-overyear) growth we forecast, but we do see fewer positive catalysts this time than we have seen in earlier quarters,” he said in a recent note to clients.
Royal Bank of Canada reports its quarterly results on Wednesday, followed by the Canadian Imperial Bank of Commerce and Toronto-Dominion Bank on Thursday. The Bank of Montreal and the National Bank of Canada will deliver their results the following week on Dec. 4 and Dec. 5, respectively.
Analysts are expecting the country’s largest financial institutions to collectively deliver earnings per share growth as high as 12 per cent in the financial fourth quarter, year-over-year.
That would mark a steady close to a financial year whose initial outlook was clouded by concerns surrounding domestic mortgage demand amid new stricter lending rules and the negotiations of the North American Free Trade Agreement.
Canada’s housing market appears to now have adjusted to the regulations for uninsured mortgages that were implemented on Jan. 1. And in September, the United States and Canada were able to reach an agreement in principle called the U.S.-MexicoCanada agreement. Meanwhile, multiple Bank of Canada rate hikes this year have helped expand the banks’ net interest margins - the difference between the money they earn on the loans they make and what they pay out to savers.
“After five BoC rate hikes over the past year, we anticipate margin expansion will continue to play out” in the latest quarter, said John Aiken, an analyst with Barclays in Toronto in a recent note to clients.
“And, with Canada’s economy staying positive, we anticipate lending volumes will edge higher to close out the year.” Canadian loan growth remains strong, with solid commercial lending offsetting slowing personal lending, said Scott Chan, an analyst with Canaccord Genuity in a note to clients. However, U.S. capital markets saw a light quarter and the equity market selloff in October will have ripple effects for the banks’ asset management businesses, he added.