Not even our favourite time of the year, bank earnings week, is safe from the spectre of U.S. tariffs.
Driving the news: Scotiabank and BMO commenced bank earnings week, with both reporting earnings beats thanks to strong capital markets performance. However, the reports came with caution as the banks said they were awaiting the outcome of U.S. tariff threats.
Big picture: With Donald Trump promising that tariffs will arrive on time, analysts expect the Big Six will soon have to increase provisions for credit losses (PCLs) — the money they set aside to cover bad loans — to prep for complications from a potential economic downturn.
- Analysts at RBC Capital Markets now project total PCLs to jump by ~32% for the quarter and ~70% year over year across the Big Six.
Why it matters: Banks had already hiked PCLs over the past couple of years as inflation and high interest rates made it harder for borrowers to pay off loans. After last year’s interest rate cuts and a soft landing on the horizon, PCL measures were supposed to take a chill pill.
Bottom line: While it’s nice to know that banks are putting away money just in case, higher PCLs do have a nasty habit of eating into earnings and pummelling share prices. That’s not ideal given the outsized impact the banking sector has on the Canadian economy.—QH