Four of the top five Canadian banks have reported lower-than-expected earnings for the second quarter. These results have been driven by higher provisions for bad loans and increased inflation that had driven up costs. Some banks have also been impacted by slow loan growth, particularly in mortgage facilities.
National Bank of Canada is amongst the latest to report that its second-quarter profits were lower than those earned a year ago, coming in at $847 million. It attributed its lower earnings to heightened provisions for bad loans and increased non-interest expenses. While revenue did rise from $2.44 billion reported in the previous second quarter to $2.48 billion, provisions for bad loans had been boosted by $3 million to $85 million. The bank, however, confirmed that it will pay a quarterly dividend of $1.02 per share, which is higher than the previous dividend of 97 cents.
Laurent Ferreira, CEO of National Bank has said that the bank’s strong capital and prudent provisions for bad loans would help it to support profitable growth and guard against possible uncertainties ahead. Concern has also been raised over Canadian bank interests in the U.S. following recent bank failures. National’s U.S. specialty finance and international business reported a fall in earnings from $152 million a year ago to $128 million in the latest quarter.
The increased bad loan provisions may indicate that there are fears the economy could worsen in future, with more Canadians expected to begin defaulting on their loans. National has warned that the economy may become lethargic over the coming year but remains optimistic that the country could avoid an economic contraction thanks to its solid banking system.
TD Bank Group has also warned of tough days ahead and reports that it is unlikely to meet medium-term earnings growth targets. This is partly attributed to the bank’s failed proposed bid to take over First Horizon Bank. TD Bank reported second-quarter profits of $3.35 billion, which is lower than the $3.81 billion reported a year ago.
RBC also reported lower second-quarter profits of $3.65 billion, down from $4.25 billion for the same quarter a year ago. Scotiabank and BMO have also confirmed lower-than-expected profits impacted by higher provisions for bad debt, higher costs and a slowdown in loan growth.
CIBC has, however, bucked the trend, reporting second-quarter profits of $1.69 billion, up from $1.52 billion the previous year. Despite also boosting its provisions for bad loans, the bank has raised its dividend by two cents to $0.87 per share. Bank CEO Victor Dodig said that they were operating in a more fluid economic environment and that the bank remained vigilant of its risk management.
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