Canada’s major banks are expected to report improved third-quarter results as U.S. tariffs appear to have caused less economic damage than initially feared. Analysts project that the country’s six largest lenders will collectively set aside $5.22 billion in loan-loss provisions, down from $6.37 billion in the previous quarter, according to LSEG data.
The banks had sharply increased reserves in recent quarters to guard against a potential wave of defaults tied to a feared North American trade war. Those concerns have eased after data from the U.S. Census Bureau showed that 92 per cent of Canadian exports entered the United States tariff-free in June under the terms of the North American trade pact. Prime Minister Mark Carney further eased tensions by rolling back some of Canada’s retaliatory tariffs last week.
“Three months later, we believe cooler heads may be prevailing with manageable reciprocal tariffs implemented between the CUSMA-bound countries,” said Canaccord Genuity analyst Matthew Lee, who noted that banks now expect provisions to decline, even as overall loan growth remains subdued.
Earnings season begins Tuesday with Bank of Montreal and Bank of Nova Scotia. Analysts forecast net interest income — the spread between lending and deposit costs — to rise between 9.3 per cent and 57 per cent. They also expect strength from capital markets and wealth management, which have been buoyed by higher fee income and renewed client activity.
With Canada’s banking sector already among the best capitalized in the world, lenders have limited growth opportunities domestically. Many have turned to stock buybacks, deploying about $4 billion in the third quarter, while continuing to expand wealth management services and U.S. operations. “Given the robust capital positions, we look forward to commentary on capital deployment plans by the banks’ management teams that can help the bank meet its medium-term financial targets,” said Veritas analyst Shalabh Garg.