Bank profits to climb in Q4
TORONTO (Reuters) - Canadian bank profits should rise modestly in the fourth quarter, with gains from stronger loan revenue and better credit quality outweighing weaker wholesale banking results.
But even if the results marginally beat expectations, analysts say the stocks are unlikely to get much of a boost, despite the potential for one or two of the lenders to resume dividend hikes for the first time in two years.
Analysts polled by Thomson Reuters I/B/E/S say profits for Canada’s big six banks should rise on average about nine percent when the lenders begin reporting tomorrow.
National Bank of Canada, the country’s No.6 bank, reports first, followed by Canadian Imperial Bank of Commerce, Toronto-Dominion Bank , Royal Bank of Canada, and Bank of Nova Scotia. Bank of Montreal will report results the following week.
“If you read through from what the US banks were doing, you’d have to say there will be lower profits out of the trading and capital markets side,” said Gavin Graham, president of Graham Investment Strategy.
“At the same time, one would anticipate pretty strong performance from the retail side of things.”
The banks’ fourth quarter ends on October 30, so it partially overlaps with the US banks’ July-September third quarter.
Canada’s banks took a hit to profits during the financial crisis, but they emerged stronger than their international rivals, and shrinking provisions to cover bad loans have helped profits over the past year.
Smaller year-over-year provisions are expected to provide a cushion again, but observers say the easy profits from better loans may have almost run their course.
Loan-loss provisions are expected to fall only slightly from the third quarter.
“The drop in the loan-loss provisions, I’ve been nervous about that all along,” said John Kinsey, a portfolio manager at Caldwell Securities in Toronto.