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Canada’s Big Banks Earn $34b in Slow Economy

Canada’s Big Banks Earn $34b in Slow EconomyCanada’s Big Banks Earn $34b in Slow Economy

Canada’s six biggest banks saw their profits climb higher over the past year, despite a sluggish economy, a slowdown in consumer borrowing and rock-bottom interest rates, but some analysts are questioning whether the trend will last.

Combined, the six largest lenders—Royal Bank, TD Bank, Scotiabank, the Bank of Montreal, CIBC and National Bank—earned $34.88 billion in net income during fiscal 2015, up almost 5% from $33.27 billion last year, Yahoo reported.

In revenue, the banks raked in a combined $129.79 billion during the past year, up from $124.72 billion in 2014.

Banking analysts have been warning since late last year that the sharp decline in the price of crude could lead to higher loan losses for the banks as oil-patch companies and laid-off workers may struggle to repay their debts.

Concerns have also been swirling that lending growth will slow as overburdened Canadians are becoming hesitant to take on more debt, and that low interest rates will put pressure on the banks’ lending margins.

Nonetheless, the banks have continued to report strong, and in some cases record-high, results.

During Royal Bank’s fourth-quarter conference call Wednesday, CEO David McKay said the bank’s $10.03 billion in net income for the year marks a new record for Canadian companies.

The CEO of TD Bank, which wrapped up the earnings parade on Thursday, emphasized that the company is positioned for growth even if oil prices remain depressed and the economy continues to lag.

“We’re adapting to the environment as we have done many, many times before,” Bharat Masrani said during TD’s quarterly conference call, highlighting recent efforts to take costs out of its business.

Slashing costs—for example, by reducing the number of full-time staff and digitizing certain functions such as document processing—was a key theme highlighted by all of the banks as they wrapped up the fiscal year, many of them recording restructuring charges.

But despite seemingly strong headline earnings results—the six banks had $8.61 billion in collective profits during the quarter, up from $7.73 billion a year ago—analysts say they have spotted a number of troubling trends.

Several of the lenders, including TD, CIBC and RBC, reported that the rate of delinquent loans, where the borrower is late on a payment, has begun to tick higher in categories such as auto loans and credit cards in western Canada. Those types of loans are usually the first to show signs of economic stress.

So far, the credit troubles are manageable for the banks, comprising only a tiny portion of their loan books.

 

Financialtribune.com