Economic decline due to tariffs weigh on Big 6 banks as they get set to report earnings
The economic uncertainty stemming from U.S. President Donald Trump’s proposed tariffs could compel Canada’s biggest banks to report provisions for credit losses that are higher than what analysts had previously expected when the lenders release their quarterly results next week.
Such a move could dampen the mood for the quarter ending Jan. 31 that otherwise is expected to reflect positive momentum due to growth in net interest margins and strong capital market results, analysts say.
“Based on where our estimates stand today, we expect most banks to handily beat consensus, provided the banks do not take this opportunity to build higher performing reserves,” Mario Mendonca, an analyst at Toronto-Dominion Bank, said in a note on Feb. 7.
Jefferies Inc. analyst John Aiken said the outlook for 2025 and beyond is “quite binary” based on whether the Trump administration will impose tariffs.
“We expect much of the conversation around the quarter will centre on what the potential implications could be and what, if anything, the bank management teams can do to mitigate the negative impact,” he said in a note on Feb. 18.
Rising provisions for credit losses (PCLs) — the money lenders keep aside for loans that might go bad — have negatively impacted the Big Six in recent years as borrowers found it difficult to pay back loans amidst persistent inflation and prolonged high interest rates.
Analysts expected the situation to gradually improve this year after the Bank of Canada started a series of rate cuts last year and prices rose at a slower rate, but Trump’s proposed tariffs on Canadian goods have led to a cloudy outlook, analysts say.
“We had become increasingly convinced that credit losses were near a peak and that the banks
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