Canadian banks hurt by weak earnings

Our high-level bank earnings summary: “Not great, but things could be worse.” 

Driving the news: Four of Canada’s Big Five banks—TD, RBC, BMO, and Scotiabank—missed estimates this week as tough economic conditions force lenders to put aside more money to prepare for borrowers falling behind on their repayments. 

  • High interest rates are also slowing the demand for credit products, while the cost of salaries, advertising, and paying out interest on customer deposits is rising. 

  • The one outlier was CIBC, which topped estimates despite seeing a revenue slump compared with last quarter. The bank cited similar factors hurting its bottom line. 

Why it matters: Decisions to set aside hundreds of millions to cover bad loans just in case underscores the conservative nature of banks in Canada. It’s a stark contrast between what we’ve seen from some banks in the US—remember Silicon Valley Bank—who chose not to hedge against potential risks and blew up, ultimately putting their depositors’ money at risk.    

  • Canadian banks often “set aside a lot of money in case loans go bad, only to see that worst-case scenario not come to pass," one analyst told CBC.
  • Despite the impact of earnings, experts say the large banks aren’t likely to fall below the minimum capital cushions required by regulators—and that’s a very good thing. 

Bottom line: Revenue may be slowing, but the big banks have been relatively unscathed by the recent turmoil in the US. Up here, we still see banks as a safe place to park money.—SB