In its 2024 Peer Review, Fitch highlights the robust performance of the country’s six largest banks and the Desjardins Group, attributing their high ratings to their substantial scale, conservative risk management, and effective underwriting practices.
The stability of the Canadian economy is anticipated to support the financial performance of these banks in the latter half of 2024. Fitch’s senior director, Maria Gabriella Khoury, points to the conservative risk profiles and well-managed exposures of Canadian banks, which have contributed to low levels of loan impairments and credit losses.
RBC is set to lead the pack, driven by its strong market position and extensive distribution network. The recent acquisition of HSBC Bank Canada is expected to further enhance RBC’s earnings, bolstering its competitive edge.
In contrast, TD Bank’s earnings are anticipated to benefit from growth in both its Canadian and U.S. retail operations and cost-saving measures. However, ongoing investigations into TD’s anti-money laundering practices could pose risks. Potential penalties, fines, and costs associated with strengthening compliance infrastructure may impact the bank’s earnings.
Canadian Imperial Bank of Commerce (CIBC) is noted for its significant domestic exposure, with over 90 percent of its earnings derived from Canada. CIBC’s earnings growth will largely hinge on its performance in the Canadian retail sector and its focus on mass affluent and private wealth segments both in Canada and the U.S.
National Bank of Canada and Bank of Montreal (BMO) are expected to benefit from their commercial banking operations. BMO’s recent acquisition of U.S.-based Bank of the West is projected to further boost its earnings.
Scotiabank’s strategy to retreat from higher-risk Latin American markets is not expected to significantly affect its performance in 2024. This analysis was completed before Scotiabank’s recent investment in a minority stake in U.S. regional bank KeyCorp.
Fitch’s outlook is set against a backdrop of what it describes as a “stagnant” economic environment. The report notes that while the Bank of Canada has begun its easing cycle, any substantial economic boost may be delayed. Household spending is likely to remain weak through at least 2025.
The report predicts a slight decline in Canada’s unemployment rate, currently at 6.4 percent, to just above six percent through 2026. It also forecasts that the Consumer Price Index will decrease to two percent by the end of 2025, with the Bank of Canada’s overnight rate expected to reach 2.5 percent by the end of 2026.
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