Canada’s top five banks disclosed their third-quarter financial results this week, setting aside reduced funds for potential loan losses as the trade tensions between Canada and the U.S. that prompted them to increase reserves abated.
The five major Canadian banks unveiled their third-quarter earnings, with each benefiting from lower provisions than anticipated due to the easing of trade tensions between Canada and the U.S.
During the third quarter, Canada’s largest banks allocated less capital for loan-related losses as the pressure from U.S. trade disputes that initially led to reserve builds diminished.
Bank of Nova Scotia and Bank of Montreal commenced the earnings week on Tuesday, followed by Royal Bank of Canada and National Bank on Wednesday, and Toronto Dominion Bank along with Canadian Imperial Bank of Commerce on Thursday.
Derek Holt, Scotiabank’s Vice President and Head of Capital Markets Economics, noted in a client memo that five out of the six banks exceeded expectations, with only National Bank marginally falling short this time.
Amid heightened trade tensions and fears of an economic slowdown during the second quarter, the banks had bolstered their reserves, anticipating potential impacts from U.S. President Donald Trump’s tariff threats.
While a trade agreement between Canada and the United States remains pending, and uncertainty persists for many Canadian businesses, the overall outlook has significantly improved since early April.
Key executives such as Kevin Tran, TD Bank’s Chief Financial Officer, and Dave McKay, RBC’s CEO, cautioned that ongoing uncertainty surrounding a trade deal could impede economic growth and lead to increased inflation.
McKay expressed concerns about the lingering uncertainty related to the Canada-United States-Mexico Agreement and tariff negotiations, which he believes are hindering investment decisions by investors and commercial clients.
Conversely, CIBC’s CEO Victor Dodig suggested that global trade tensions might result in slower growth and higher inflation, but he remains optimistic that declining interest rates could help bolster economic expansion.
Senior Portfolio Manager Michael Dehal of Dehal Investment Partners at Raymond James praised the encouraging results of Scotiabank and BMO as the earnings week commenced, citing a sense of optimism regarding potential trade agreements and reduced tensions compared to the previous quarter.