Canada’s biggest banks are set to post a round of resilient profits, bucking economic uncertainty and looming trade pressure ahead of talks to renew the USMCA.
Analysts expect capital markets and wealth management activity to continue to bolster profits while loan growth slows and credit losses remain at elevated but manageable levels. Canadian bank stocks have surged 16 per cent this year on the optimism surrounding the sector’s ability to withstand economic uncertainty, outperforming the S&P/TSX Composite Index’s 8-per-cent climb.
While banks are expected to post strong earnings results next week, investor reaction will depend on management’s expectations for the latter half of the year, Jefferies analyst John Aiken said in a note to clients.
“Despite some serious potential headwinds, the Canadian banks continue to boast almost historically high valuations,” Mr. Aiken said. “We do not anticipate that the Q2 earnings will put this at risk, but with almost all the upside priced in, any questions surrounding promised robustness of the second half of 2026 could potentially upset the apple cart.”
Canada’s six largest lenders report over the course of two days. “It’s going to be a banger,” Canadian Imperial Bank of Commerce analyst Paul Holden said in a note.
On Wednesday, Bank of Nova Scotia BNS-T +0.68%increase, Bank of Montreal BMO-T +1.09%increase and National Bank of Canada NA-T +0.12%increase will report earnings for the three months ended April 30. Royal Bank of Canada RY-T +0.53%increase, Toronto-Dominion Bank TD-T +1.01%increase and Canadian Imperial Bank of Commerce CM-T +0.82%increase will post earnings on Thursday.
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The lenders have benefited from “a positive halo effect” from a “resource-rich economy, pro-business Carney government,” Bank of America analyst Ebrahim H. Poonawala said in a note. Those factors encouraged investors to look past Canada’s challenged job and housing markets, as well as uncertainty over the coming renegotiation of the United States-Mexico-Canada Agreement, he added.
In recent years, capital markets activity has propped up bank profits. Volatile equity markets have boosted trading activity, softening the impact of dampened loan demand from consumers and businesses.
To beat analysts’ expectations, the banks will again have to rely on stronger profits from their capital markets units, National Bank of Canada analyst Gabriel Dechaine said in a note.
“Barring a margin or credit surprise, the onus falls on the capital markets to deliver this outcome, which isn’t impossible considering several favourable market conditions,” Mr. Dechaine said.
Scotiabank analyst Mike Rizvanovic said recent discussions with senior bankers suggest that the pipeline for mergers and acquisitions and equity and debt capital markets has been constructive, and elevated market volatility should continue to propel trading revenue.
He expects capital markets earnings to grow by 13 per cent compared with the same quarter last year.
Mr. Rizvanovic said loan volumes are likely to be “anemic,” weighed down by weakness in mortgages and real estate secured lending.
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Analysts anticipate provisions for credit losses – the money banks set aside to cover loan defaults – to edge higher. The provisions are a closely watched measure of financial stress among consumers and businesses.
Last quarter, delinquencies of more than 90 days rose across credit cards, unsecured lines of credit, mortgages and auto loans as more customers struggled to pay off their loans.
Provisions for impaired loans – debt that is unlikely to be repaid – are expected to rise in the second quarter, offsetting lower provisions for loans that are still being repaid.
“We are getting more cautious on credit losses given the weakness in Canadian unemployment, a soft housing market in the GTA, and industry credit metrics,” Mr. Holden said.
