- Six largest Canadian banks are expected to allocate over CAD 4 billion in credit loss provisions for Q3
- Projected 27% year-over-year increase driven by rising insolvency rates
- Impact of Bank of Canada’s rate cuts yet to be fully realized
Toronto, August 21, 2024 (FFN) – Canada’s six largest banks are expected to significantly increase their provisions for potential credit losses in the third quarter of this fiscal year. This move is anticipated to result in an allocation of more than CAD 4 billion, reflecting a sharp rise from the same period last year. The increase is largely attributed to a growing number of insolvencies and banks’ expectations that this trend will persist. According to a report by Reuters, analysts estimate that the top six Canadian banks will set aside approximately CAD 4.5 billion (EUR 2.98 billion) in credit loss provisions for the period from May to July, which would represent a 27% year-over-year increase.
Ebrahim Poonawala, an analyst at Bank of America, noted that “Q3 results are likely to highlight the ongoing challenges in the Canadian economy, with a notable slowdown in loan growth anticipated.”
Despite two interest rate cuts by the Bank of Canada earlier this year, the economic impact of these reductions has yet to be fully realized. However, further rate cuts expected during the final three meetings of the year could have a more substantial effect in the second half.
Market attention is now focused on the results from Toronto-Dominion Bank, which will be the first among the major banks to release its quarterly report on August 22. Analysts are also closely watching Bank of Montreal, which is expected to report a significant increase in provisions for credit losses.
It is anticipated that five out of the six major Canadian banks will report an increase in credit loss provisions, ranging from 28.4% to 45%, with CIBC being the only bank expected to report a decrease.
Table: Projected Increase in Credit Loss Provisions for Major Canadian Banks (Q3 2024)
| Bank | Estimated Provisions (CAD Billion) | Year-over-Year Increase (%) |
|---|---|---|
| Toronto-Dominion Bank (TD) | 1.2 | 30% |
| Bank of Montreal (BMO) | 0.9 | 28.4% |
| Royal Bank of Canada (RBC) | 1.1 | 32% |
| Canadian Imperial Bank (CIBC) | 0.5 | -5% |
| Scotiabank | 0.8 | 45% |
| National Bank of Canada | 0.5 | 29% |
Key Words: Canadian banks, credit losses, provisions, insolvency rates, Bank of Canada
