Canadian banks brace against trade war headwinds
(3 December 2019 – Canada) Four of Canada’s Big Six banks reported weaker quarterly profit in 2019 and have added to provisions set aside to cover loan losses in the quarter.
The fallout from the global trade slump is spreading beyond industrial sectors and into Canadian bank results.
Each of Canada’s six largest banks added to provisions set aside to cover loan losses in the quarter, framing the increases as a “normalisation” after an extended run of unusually healthy credit. Banks are feeling the same global pressures that have weighed on the Canadian and US economies and have begun making preparations for a more difficult year in 2020 while tempering investors’ expectations. Bank of Montreal, TD and Royal Bank of Canada (RBC) all took restructuring charges of varying sizes. Four of Canada’s Big Six banks reported weaker quarterly profit than a year ago, a surprising weak result for the country’s banking sector. There were common headwinds cited by bank CEOs, including rising consumer insolvencies and low oil prices.
But the economic havoc wrought by the US-China trade war is the main driver of weakness. Canadian banks have been relatively resilient since the Global Financial Crisis, maintaining profit growth as trade-centric sectors succumbed to the industrial slowdown.
East & Partners Global Currency Forecast analysis reveals Canadian importers and exporters predict the CAD to reach 0.768 against the USD by June 2020.
Trade protectionism was cited by Darryl White at Bank of Montreal, meanwhile, as likely leading to a modest slowing of the US economy next year. And Victor Dodig, CIBC’s CEO, lowered expectations for next year’s earnings growth to low single digits.
“Looking ahead, we expect the operating environment to remain challenging, with continued geopolitical and trade tensions, further normalization of credit conditions and late-cycle concerns keeping interest rates under pressure and financial markets on edge” stated TD CEO Bharat Masrani
“The next couple of years are likely to be challenging given interest rate trends, uncertainty around global growth, trade tensions and normalized credit conditions, among other factors” stated RBC CEO Dave McKay.
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