Tariffs to have a severe, indirect impact on Canadian bank stocks, analysts say
Some analysts are warning that a trade war could severely impact stocks of Canadian banks as the United States and Canada break away from a long-standing, friendly economic relationship to impose tariffs on each other.
The tariffs won’t impact Canadian banks directly, but their fortunes are “intimately tied to the health of the Canadian economy,” Bank of Nova Scotia analyst Meny Grauman said in a note on Monday amid uncertainty about a potential trade war. “In that context, the current trade war that we find ourselves in has serious negative implications for Canadian bank stocks.”
Royal Bank of Canada analyst Darko Mihelic also expects Canadian bank stocks to suffer “ahead of the possibility of a tariff-induced recession.”
U.S. President Donald Trump on Saturday announced 25 per cent tariffs on most Canadian goods and a 10 per cent levy on Canadian energy. In response, Canada said it will impose 25 per cent tariffs on U.S. goods ranging from orange juice to household appliances to plastics.
But analysts expect the trade war to hurt Canada more than the U.S., which has an economy that’s about 10 times larger.
In the short term, Canada’s banks may face a large increase in provisions for credit losses (PCLs), which is the money lenders keep aside to tackle bad loans, Mihelic said.
PCLs dominated discussions among Canada’s biggest banks in the past 18 months as consumers gradually recovered from the impacts of the COVID-19 pandemic. Prior to the tariffs, most analysts expected concerns linked to PCLs to gradually dissipate over the next year, but that outlook seems to be changing.
“We expect performing PCLs will start to rise throughout 2025 and possibly well into 2026,” Mihelic said in a note on Monday. “We expect the
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