Credit losses gives National Bank a bump
Although National Bank is not considered a top five bank, its focus on domestic banking makes it an admirable adversary in the personal and commercial division.
Looking at its third-quarter 2021 results released Aug. 25, the company’s best to worst performing segments were personal and commercial, financial markets, wealth management and U.S. specialty finance and international. Its financial markets division reported net income of $227 million, up from $188 million the prior year, driven by a $40-million increase in corporate and investment banking revenues.
Overall, the company reported revenues of $2.254 billion, up from $1.968 billion the prior year with net income of $839 million, compared to $602 million in 2020.
Thomas Holloway, senior instructor of finance at the Haskayne School of Business at the University of Calgary, notes that provisions for credit losses have provided a onetime boost to recent quarterly earnings.
“One way to find out how long we can expect the (stellar results) to keep going is to check the actual levels of the provisions for credit losses. Once they get down to normal, you wouldn’t expect it to continue (contributing to the bank’s bottom line).”
As for macroeconomic factors, Nigel D’Souza, investment analyst at Veritas Investment Research with a focus on financial services, notes that there are two distinct environments: the pandemic environment, characterized by accommodative financial market conditions, and the post-pandemic environment, marked by less accommodative conditions.
“The reason why (the two environments are) important is because National Bank is very concentrated in its capital markets business. If we are correct on financial market conditions normalizing, that is a significant headwind for National Bank in terms of lower earnings and revenue for its capital markets business,” D’Souza stated, adding that it is unlikely its other divisions will be able to offset the impact on its capital markets segment.