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PREVIEW-Canadian banks set for earnings decline but investors optimistic about recovery

(Repeats story first published Sunday with no changes to text)
    By Nichola Saminather
    TORONTO, Feb 21 (Reuters) - Canadian banks are set to post
their fourth straight year-on-year quarterly profit drop when
they report results next week, the longest decline streak since
the financial crisis, on margin compression and declining
commercial lending, but flattening loan loss provisions signal a
turning point, investors said.
    Banks' profit margins are also expected to get a boost from
rising 10-year bond yields in Canada and the United States in
future quarters as short-term rates remain near zero. Banks
often fund their lending with short-term borrowing or bank
    Analysts estimate the nation's six biggest lenders - Royal
Bank of Canada  RY.TO , Toronto-Dominion Bank  TD.TO , Bank of
Nova Scotia (Scotiabank)  BNS.TO , Bank of Montreal  BMO.TO ,
Canadian Imperial Bank of Commerce  CM.TO  and National Bank of
Canada  NA.TO  - will post an average decline of 4.3% in
first-quarter profit from the previous three months and 12% from
a year earlier, according to Refinitiv data.
    BMO and Scotiabank start reporting results for the three
months through January on Tuesday.
    Bank CEOs have turned optimistic about 2021, driven by the
deployment of coronavirus vaccines, although Canada has seen a
slower rollout than some other developed nations.*:nL1N2JM22V
    "Regardless of short-term issues, it's comforting that we
have multiple vaccines," said Manulife Investment Management
Senior Portfolio Manager Steve Belisle. "They’ve good reason to
be optimistic versus the worst case scenarios last year."
    First-quarter profit declines will be driven by margin
pressure and modest loan growth, Canaccord Genuity Analyst Scott
Chan said in a note on Thursday. But profits are set to benefit
from strong mortgage growth driven by booming housing demand,
and gains in capital markets and wealth and asset management
units, Chan said.
    Chan said he's revised earnings estimates up 3%, "supported
by our assumption of better credit conditions and continued
tailwinds from market sensitive businesses." 
    Record provisions for loan losses (PCLs) taken in 2020 mean
a significant increase in capital set aside is unlikely during
the quarter, said Anthony Visano, managing director of Kingwest
& Company, which holds shares in TD, Scotiabank and CIBC.*:nL4N2IJ2UG 
    However, unlike U.S. banks that have already begun releasing
some of their reserves back into earnings, Canadian lenders are
likely to wait until later in the year to do so, he said. 
    "As the year unfolds, we should see the vaccine's assist in
terms of the loan growth books ... sequentially, we should see
improvements, especially when it comes to provisions
normalizing," Visano said. 

($1 = 1.2716 Canadian dollars)

 (Reporting By Nichola Saminather
Editing by Nick Zieminski)
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