Bank CEOs warn tariffs could hit business confidence despite Big Six banks surpassing first-quarter forecasts
Canada's Big Six banks have reported first-quarter earnings surpassing analyst expectations, driven by robust trading revenues and capital markets activity.
Increased market volatility following the US presidential election contributed to these gains.
However, bank executives have expressed concerns that ongoing uncertainty over trade policies and impending tariffs could impact economic growth and business investment.
According to BNN Bloomberg, Scotiabank's chief risk officer, Phil Thomas, said banks had not adjusted their provisions for loan losses as of January 31, despite market fluctuations driven by headlines and political statements.
Financial institutions acknowledged they might need to increase provisions if tariffs are implemented.
This uncertainty was underscored when US President Donald Trump announced plans to impose a 25 percent tariff on Canadian imports, effective March 4, citing concerns over drug smuggling, including fentanyl, into the US.
BMO chief executive Darryl White commented on the unpredictability of economic forecasts, stating that predictions now have a “shelf life” of only 24 hours.
RBC chief executive Dave McKay echoed concerns about declining business confidence, with commercial banking clients delaying investments. He also noted that Canadian housing activity remains modest despite lower interest rates and adjusted mortgage rules.
CIBC chief executive Victor Dodig emphasized that both business and personal clients are hesitant to commit to major financial decisions amid economic uncertainty.
He suggested that addressing Canada's digital services tax, which has drawn criticism from US tech companies, and eliminating any subsidized steel and aluminum passing through Canada into the US could help ease trade tensions.
National Bank chief executive Laurent Ferreira highlighted broader economic challenges, advocating for deregulation, accelerated depreciation on capital investments, and lower capital gains taxes for business owners.
McKay also called for improvements to Canada's economic productivity and competitiveness, including approving major energy and infrastructure projects.
Canada’s largest banks reported strong financial results despite economic concerns.
According to Reuters, RBC’s net income rose 43 percent to $5.1bn, surpassing analyst expectations of $3.25 per share with adjusted earnings of $3.62 per share.
The bank's capital markets division saw a 47 percent increase in earnings, contributing $1.7bn to overall profits. Wealth management revenues also grew by 18 percent, driven by strong client activity.
TD Bank’s profit fell 1 percent to $2.79bn but still exceeded estimates with adjusted earnings of $2.02 per share. The bank’s Canadian retail segment reported a 5 percent increase in earnings, offset by a 12 percent decline in US retail banking profits.
Despite this, TD’s capital markets unit posted a 16 percent rise in net income, benefiting from higher trading revenues.
CIBC’s profit climbed 26 percent to $2.17bn, also beating expectations at $2.20 per share. The bank's commercial banking and wealth management division recorded a 19 percent increase in earnings, while personal and business banking profits rose 11 percent.
Bank of Nova Scotia reported a net income of $2.44bn, a 17 percent increase from the previous year, with adjusted earnings per share of $2.19. Its international banking segment posted a 9 percent gain, bolstered by growth in Latin America.
Bank of Montreal’s net income rose 14 percent to $2.57bn, driven by a 22 percent increase in its wealth management division and strong loan growth in its commercial banking segment.
National Bank of Canada also outperformed analyst forecasts, reporting a net income of $1.08bn, a 13 percent increase, with higher revenues in its financial markets and wealth management divisions.
Banks have also bolstered capital reserves to prepare for potential economic downturns.
RBC set aside $1.05bn in provisions for credit losses, higher than expected, driven in part by impaired loans in the utilities sector. TD allocated $1.21bn, while CIBC reserved $573m, both exceeding analyst estimates.
TD Bank provided updates on its strategic review and efforts to address anti-money laundering compliance issues.
The bank pleaded guilty in October to conspiracy to commit money laundering and agreed to several penalties, including an asset cap limiting its US retail division's growth.
By the end of the quarter, TD had reduced its US assets to $402bn, below the regulatory cap of $434bn.
In February, according to Reuters, the bank announced plans to sell $9bn in US residential mortgage loans as part of its broader restructuring strategy.
Executives reaffirmed their banks' financial resilience, citing strong balance sheets and liquidity positions.
CIBC's chief financial officer, Robert Sedran, stated that high capital levels allow for continued share buybacks. McKay acknowledged the uncertainty ahead but emphasized that RBC has the stability to manage potential economic challenges.
“We're hoping for the best, preparing for the worst,” he said.
The broader economic landscape reflects these concerns.
Alberta, Canada's oil-producing province, projected a budget deficit of $5.2bn for the fiscal year 2025/26, primarily due to potential US tariffs.
Reuters reports that the current fiscal year, originally expected to have a $5.8bn surplus, now faces a significant shift.
In response to the proposed tariffs, Canadian Prime Minister Justin Trudeau announced that Canada would respond swiftly and firmly if the United States imposes tariffs on Canadian imports.
During a press conference in Montreal, Trudeau expressed a desire to avoid a trade war with the neighboring country.
