Preview: Canadian banks' profits seen pressured by slower dealmaking, mortgage growth
22/08/2023 11:00
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RBC, TD to kick off Canadian banks' Q3 earnings Thursday
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Most banks likely to show a rise in bad debt provisions
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A slump in dealmaking, capital-raising to weigh on
revenues
By Nivedita Balu
TORONTO, Aug 22 (Reuters) - Canada's big bank results
are expected to bring to light a number of challenges as lenders
set aside more funds for bad loans in a tough economy that has
also led to a slowdown in dealmaking and forced borrowers to
rethink about new mortgages.
The big six banks, which control a majority of the market in
the country, have had to brace for macroeconomic uncertainties
and build reserves while also ensuring they have enough capital
to meet new regulatory requirements in case of uncertainties.
"We expect another challenging quarter for the group," KBW
analyst Mike Rizvanovic said, adding that he expects slowing
loan growth, higher expenses and higher provisions for credit
losses.
The shares of the top five banks - Royal Bank of Canada
RY.YO , TD Bank TD.TO , Bank of Montreal BMO.TO , Bank of
Nova Scotia BNS.TO and CIBC CM.TO - have lost between 2% and
8% so far this year. National Bank NA.TO has gained about 9%
while the broader Toronto Stock Exchange's index .GSPTSE has
risen 2.2%.
The Bank of Canada has hiked interest rates ten times since
March 2022, most recently in June after a brief pause in March.
While the rate hikes help improve margins from money banks earn
by lending out cash, the rates impact mortgages and borrowing
costs.
Those dynamics, among others, have forced Bay Street
analysts to lower their estimates but have largely maintained
their rating to reflect the banks' reputation as safe havens
owing to their strong capital position and reserve levels.
Royal Bank of Canada and TD Bank will kick off third-quarter
results on Thursday.
RBC analyst Darko Mihelic forecast a 9% third-quarter
revenue decline from a year ago for the capital-market business
of the large Canadian banks. He also forecast total provisions
for credit losses to increase about 8% from the prior quarter to
$2.3 billion.
Of the big five, analysts expect TD to be better positioned
on capital, deposits and scale, owing to its acquisition of
Cowen and its large U.S. presence.
Investors will also watch for any updates on Bank of Nova
Scotia's BNS.TO turnaround plan for its international
business.
Also on investors' radar are possible updates on RBC's
acquisition of HSBC Canada. The industry will also look for
clues on interested buyers for Laurentian Bank LB.TO which has
said it is reviewing its business.
Some banks have been focusing on trimming costs through
headcount reductions while making big investments in technology.
Investors will be eying whether those cost-cutting efforts are
paying off after the banks acknowledged they had over-hired
during the pandemic.
"Although our Q3 estimates drop ... there are some signs
that capital markets activities may rebound for (Q4 of 2024),
and we still think net interest income can stabilize to modestly
increase in the next few quarters," RBC's Mihelic said.
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Analysts revise EPS estimates as the going gets tough https://tmsnrt.rs/3E1LzVL
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(Reporting by Nivedita Balu in Toronto
Editing by Matthew Lewis)
((Nivedita.Balu@thomsonreuters.com; Twitter: @niveditabalu;))