Banks poised to report strong Q2 despite housing slowdown: analysts
TORONTO Canada’s biggest banks are upping the ante in the mortgage wars amid slowing growth and national housing sales at lows not seen in several years, but analysts say real estate market woes won’t dent lenders’ earnings just yet.
The banks, which are set to begin reporting their second-quarter results this week, are expected to deliver “solid” earnings, said Darko Mihelic, an analyst with RBC Capital Markets.
Unemployment rates have stayed low and wage growth has generally remained strong “which should be supportive for the Canadian housing market,” he said.
However, Mihelic said he still sees housing activity and prices as soft and the downside risk as real.
“We would like to see a few more months of data to better understand the extent of the impact that recent changes to the housing/mortgage market have had on residential mortgage growth and the broader economy,” he said in a recent research note.
CIBC is the first of the big banks scheduled to report its latest results with data out Wednesday, followed by TD Bank and Royal Bank on Thursday. Scotiabank is set to report its results on May 29, with BMO and National Bank on May30.
Concern over the ripple effect of a cooling housing market on Canada’s Big Six lenders has been mounting amid new tighter mortgage lending guidelines, rising interest rates and measures introduced by provincial governments, such as taxes on nonresident buyers.
However, analysts are expecting improvement on other fronts, such as efficiency gains and better margins on the back of three Bank of Canada rate hikes in less than one year, to help fuel the banks’ earnings in the quarter.
“This is not to suggest that everything is coming up roses, but there are enough flowers to hide the odd weed in the garden,” said CIBC analyst Robert Sedran in a note to clients. He is forecasting the banks’ earnings per share to grow nine per cent, year over year, while Mihelic is expecting an eight per cent bump.
Still, the tail end of the banks’ second quarter, which ended April 30, saw double-digit yearover-year drops in both national home sales activity and average sale price, according to the latest figures from the Canadian Real Estate Association.