Canada's big banks face more credit losses amid mortgage renewal crunch

financialpost.com:

Credit losses and expense controls will be closely watched when Canada’s big banks begin to roll out fourth-quarter earnings on Nov. 28, results that come as households and businesses contend with higher interest rates and the economic outlook casts a cloud over revenue growth expectations.

The probability of negative surprises on credit losses is low, but any downside shocks in the year-end reports are likely to receive outsized reactions from investors, CIBC Capital Markets analyst Paul Holden wrote in a recent note to clients. At the same time, he said, the lenders are “unlikely to be rewarded” for any earnings beats if credit losses come in on the low side.

The fourth-quarter financial results are expected to reflect slower loan and revenue growth. Holden expects most banks will announce dividend increases alongside their financial results, but he forecasts smaller-than-usual bumps — between one and three per cent — due to lower earnings growth and a “challenging” year ahead.

“The market is anchored on higher losses in (fiscal) 2024” as the economic outlook dims, Holden wrote, adding that fourth quarter results and management commentary are unlikely to change that view.

“We do not see a lot to get positive on,” he said.

The analyst said “inflection points” for the sector would include a peak in credit losses and the start of interest rates cut by the central bank. If those come to pass, he said, fiscal 2025 “should be a recovery year” with average growth of around 10 per cent across the Big Six.

We do not see a lot to get positive on

In his report, Holden said the banks are working to get expenses in line with muted growth after ramping up hiring and planning increased expenditures based on what they thought would be