When Canada’s big banks report their quarterly financial results this week, analysts will be looking for hints into the executives’ views of the economic recovery from COVID-19.
Quarterly results should offer hint at progress of economic recovery
Canada’s biggest banks will report their quarterly financial results this week, and analysts say they will be listening for hints as to how bank executives view the economic recovery from COVID-19.
John Aiken, head of research for Canada at Barclays, says that Canadian bank leaders will likely give analysts insight on how the economy is recovering in different sectors, such as mortgage borrowing, credit card spending and small business loans.
“With the housing market doing exceptionally well, this is the one area where we are hoping to see growth. Obviously, the executives have a much better visibility in terms of what to expect moving forward,” he said in an interview.
“The flip side of the coin is, with the economy largely in lockdown, individuals are not spending on nearly as much, and we’re actually seeing credit card balances declining … The other area that I’m particularly interested in seeing is the commercial loan book. What businesses are growing and expanding? Which ones are not doing as well?”
Scotiabank and BMO kick off bank earnings on Tuesday, while RBC and National Bank will report on Wednesday, followed by CIBC and TD Bank Group on Thursday.
Aiken expects the banks to post “solid” quarterly financial results, despite the ongoing COVID-19 related lockdowns. A potentially “buoyant” auto loans business could be something that could help banks that are active in personal loans, says Robert Colangelo, senior vice president of the global financial institutions group at DBRS Morningstar.
Colangelo says the banks’ wealth management businesses will be something to watch in Canada as well, with the capital markets being “strong” and client portfolios potentially growing through market volatility, which could benefit banks through higher fees.
Goldman Sachs — which has more exposure to wealth management and investment banking and less exposure to consumer and business loans compared with other U.S. banks like Citigroup, JPMorgan Chase and Wells Fargo — said last month its profits more than doubled year-over-year in its latest quarter.
One key trend out of the U.S. has been banks releasing allowances for loan losses, wrote Gabriel Dechaine, National Bank of Canada Financial Markets analyst, in a research note after U.S. bank earnings last month. Last year, banks across the world set aside funds in the early stages of the pandemic, preparing for an economic downturn that could drive borrowers to default.
But Aiken says that Canadian banks are likely to take a more conservative approach than U.S. banks, in part because of different accounting regimes.
“If they are releasing the allowances, it’s a signal and an indicator that the economy is going to do better than what had originally been considered,” says Aiken.