Canadian banks bracing for credit losses

TORONTO — Canadian banks are continuing to put aside hefty amounts of money to protect themselves from bad loans as the COVID-19 pandemic rages on, even as they hope the worst has passed.

The Bank of Nova Scotia revealed Tuesday that its provisions for credit losses totalled $2.18 billion in its third quarter, $1.85 billion last quarter and $713 million in the year prior.

Meanwhile, BMO Financial Group’s amounted to $1.05 billion, up from $306 million last year and down from $1.11 billion last quarter.

The increase in cash reserves offer Canada’s first peek at how the last few months have transformed bank budgets, which have been under pressure since the pandemic began.

While banks have been preparing for bad loans stemming from the pandemic for a few quarters, analysts have predicted they will now start to decrease and executives said they expect to see better numbers starting this quarter.

“It’s going to require a lot of quarters of clean up from here, but we do view this quarter’s PCL as our high-water mark,” Daniel Moore, Scotiabank’s bank’s chief risk officer, said on a call with financial analysts.

Despite the unclear economic outlook, BMO sounded a similarly reassuring tone.

“There continues to be a high degree of uncertainty around the trajectory of the economic recovery, but we feel with this quarter’s addition to our performing loan allowance, we are well prepared and provisioned,” Patrick Cronin, the bank’s chief risk officer, told analysts.

Scotiabank’s net profit slipped to $1.30 billion or $1.04 per diluted share from $1.98 billion or $1.50 per diluted share a year ago.

The bank was “significantly” affected by operations in its Latin American markets, which were late to experience the spread of COVID-19, executives said.

On an adjusted basis, Scotiabank said it earned $1.04 per diluted share in the quarter, down from an adjusted profit of $1.88 per share in the same quarter last year. Analysts on average had expected an adjusted profit of $1.11 per share, according to financial markets data firm Refinitiv.

BMO fared better than Scotiabank, reporting a profit of $1.23 billion or $1.81 per share in the quarter. That was down from $1.56 billion or $2.34 per share a year ago.

On an adjusted basis, BMO says it earned $1.85 per share for the quarter, down from an adjusted profit of $2.38 per share in the same quarter last year.