The Hamilton Spectator

Banks expected to report strong quarter

Stabilizin­g housing, higher interest rates good for bottom line

- ARMINA LIGAYA

TORONTO — Canada’s biggest banks are expected to report yet another strong quarter as the country’s housing market shows signs of stability and rising interest rates add to their bottom line.

Royal Bank of Canada is the first lender to report its fiscal third-quarter results on Wednesday, and most analysts are expecting “solid” growth across the industry, with estimates of earnings-per-share growth as high as 10 per cent year-over-year.

“We believe the earnings environmen­t sets up well for a strong second half ... With the Canadian housing market behaving itself, investors can turn their attention away from that and towards earnings, which have been supported by (profit) margin expansion, operating leverage, and growth in the expansion segments,” Robert Sedran, an analyst with CIBC Capital Markets, said in a research note.

Canadian Imperial Bank of Commerce will be the next to report its earnings for the threemonth period on Thursday, followed Canada’s big banks have built up a capital buffer and are better prepared for a housing crisis.

by Bank of Nova Scotia and Bank of Montreal on Aug. 28, National Bank of Canada on Aug. 29 and Toronto Dominion Bank on Aug. 30.

One factor looming over the banks’ earnings for most of the fiscal year has been housing activity and mortgage originatio­ns after tighter lending guidelines were introduced at the beginning of the year.

National home sales in July were down 1.3 per cent compared to a year earlier, smaller than the double-digit declines seen in previous months. The Canadian

Real Estate Associatio­n said that the new stress test for uninsured mortgages “continues to weigh on home sales, but its effect may be starting to fade slightly in Toronto and nearby markets.”

Some analysts say they expect banks’ earnings performanc­e to be driven in part by improvemen­ts in housing market stability, particular­ly in the Greater Toronto Area, but others are advising caution.

In the fiscal first and second quarters, most Canadian lenders got a bump from a spike in mortgage originatio­n at the end of the

calendar year as homebuyers rushed to lock in home loans before the new rules took effect on Jan. 1.

Canada’s Big Six banks and Quebec’s Desjardins Group have built up a capital buffer and are better prepared for a housing crisis at home than they were in 2016, Moody’s Investor Service said in a recent report.

Plus, economic fundamenta­ls and a rising interest rate environmen­t on both sides of the border may be poised to offset the impact of slowing mortgage lending growth.

 ?? TIJANA MARTIN THE CANADIAN PRESS ??
TIJANA MARTIN THE CANADIAN PRESS

Newspapers in English

Newspapers from Canada