Large Canadian banks are recovering from the pandemic showing annual profits growth

It’s been less than a year, and Canadian biggest banks have already returned to their usual income growth, even compared with pre-pandemic results.

All Canada’s six largest banks reported higher net income over the three months through January than in last year’s fiscal first quarter. Moreover, the numbers exceeded analysts’ forecasts.

“From the very beginning, Canada showed great coordination between the financial system, the Bank of Canada, the regulators and the government,” – noted CIBC Chief Financial Officer Hratch Panossian. “We’ve managed to soften part of the influence of the pandemic and the challenges that we’re going through.”

In addition to it, the banks helped their customers avoid default through loan-deferral programs and by setting aside record amounts of capital when the crisis started. Thus, they protected themselves in case of massive loan losses and increased investor confidence. Such decisions pushed the profit gains in the first quarter as the banks reported significantly lower number of credit losses than in the fourth quarter. In case of all six banks, set-asides were even smaller than a year earlier, before the pandemic began.

Due to strong capital markets, RBC and National Bank of Canada managed to increase their incomes. They both have been raising their investment-banking and trading operations for years. Canada’s stable real estate market helped consumer-focused Toronto-Dominion Bank and CIBC, which has focused recently on recovering its mortgage-lending business. Bank of Nova Scotia also showed certain improvements.

“Experts believe that Canada’s economy will normalize sooner (but not necessarily stronger), than the economy of the U.S.”, – says James Shanahan, an analyst at Edward Jones. “As BMO and TD have more exposure there, it will be a net positive for them”.

According to Gabriel Dechaine, an analyst at National Bank, the tendencies determining the banks’ results this year focus not on who will recover first, but on which banks will be better at controlling costs. Another important factor is the borrowers’ class, which will start taking out loans again. There are certain signs that business lending may rebound faster than consumer lending, and it’s a reversal of normal scenario during an economic recovery.