21/02/2021
▶️Canadian banks set for earnings decline but investors optimistic about recovery
TORONTO (Reuters) - 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. Banks often fund their lending with short-term borrowing or bank deposits
Record provisions for loan losses (PCLs) taken in 2020 mean a significant increase in capital set aside is unlikely during the quarter, said Anthony Visano, managing director of Kingwest & Company, which holds shares in TD, Scotiabank and CIBC.
However, unlike U.S. banks that have already begun releasing some of their reserves back into earnings, Canadian lenders are likely to wait until later in the year to do so, he said.
"As the year unfolds, we should see the vaccine's assist in terms of the loan growth books ... sequentially, we should see improvements, especially when it comes to provisions normalizing," Visano said.
($1 = 1.2716 Canadian dollars)
