CANADIAN BANKS EXPECT EARNINGS DIP BUT INVESTORS STILL OPTIMISTIC

Canadian banks are set to post their fourth straight year-on-year quarterly profit drop when they report results next week, the longest decline streak since the financial crisis, on margin compression and declining commercial lending, but flattening loan loss provisions signal a turning point, investors said.

Banks’ profit margins are also expected to get a boost from rising 10-year bond yields in Canada and the United States in future quarters as short-term rates remain near zero, Nichola Saminather reported for Reuters. Banks often fund their lending with short-term borrowing or bank deposits.

Analysts estimate the nation’s six biggest lenders - Royal Bank of Canada, Toronto-Dominion Bank, Bank of Nova Scotia (Scotiabank), Bank of Montreal, Canadian Imperial Bank of Commerce and National Bank of Canada - will post an average decline of 4.3% in first-quarter profit from the previous three months and 12% from a year earlier, according to Refinitiv data.

BMO and Scotiabank start reporting results for the three months through January on Tuesday. Bank CEOs have turned optimistic about 2021, driven by the deployment of coronavirus vaccines, although Canada has seen a slower rollout than some other developed nations. “Regardless of short-term issues, it’s comforting that we have multiple vaccines,” said Manulife Investment Management Senior Portfolio Manager Steve Belisle. “They’ve good reason to be optimistic versus the worst case scenarios last year.”s

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