Weak loan provisions fuel Canadian bank profits: Fitch
“Stable revenues and below-normal provisions supported a third consecutive quarter of [year over year] earnings growth for Canadian national systemically important banks and Desjardins, ”he said.
About 20% of big banks’ profits in the third quarter were driven by their historically low credit loss provisions, Fitch noted.
With the onset of the pandemic, banks added $ 13.7 billion in loan loss provisions, but they have so far taken only between 18% and 58% of that amount.
“Therefore, further reserve releases will continue to support earnings throughout fiscal 2021 and into 2022,” Fitch said. loans at pre-pandemic levels and higher interest rates.
However, this outlook faces downside risks, including resurgent infection rates and supply chain disruptions that limit economic activity.
Last week, Fitch lowered its 2021 GDP forecast to 5.0% from 6.6% following a weak second quarter and persistent supply shortages.
In the meantime, however, revenue growth has remained positive at the major banks, “aided by the continued strength of the mortgage issuance, wealth management and capital markets segments at most institutions.” , Fitch said.
Overall, the wealth management divisions of banks saw solid revenue growth in the third quarter, as higher assets under administration and assets under management boosted commission income, he said.
“The strength was felt in retail and institutional businesses, and income also benefited from increased mutual fund fees and retail brokerage / trading income driven by higher client activity,” said Fitch said, adding that this segment is expected to remain strong in the fourth quarter as long as the markets remain buoyant.
In capital markets, investment banking income was supported by mergers and acquisitions and loan syndication activities, which were offset by lower trading income from fixed income and equity securities in the capital markets. a context of lower market volatility.
Fitch also said banks remain well capitalized, although she expects capital levels to decline in the “medium term” as temporary restrictions on share buybacks and other equity shares expire. , as do regulatory accommodations for credit losses.
“In Fitch’s view, banks remain well positioned to absorb unexpected credit losses related to coronavirus variants or supply chain disruptions,” he said.