Large Canadian Banks Q3 2022 Earnings Round-Up: Higher Provisions and Lower Capital Markets Results Reflect Economic Uncertainty
The Big Six Canadian banks reported mixed results for Q3 2022 amid an increasingly uncertain operating environment. Aggregate quarterly adjusted earnings declined 5.1% quarter over quarter (QOQ) and 4.8% year over year. Earnings were down QOQ primarily as a result of higher provisions for credit losses (PCL) and lower noninterest income from a drop in trading revenue and underwriting and other advisory fees, partially offset by higher net interest income from volume growth and a 4 basis point expansion in reported net interest margin (NIM) as a result of higher interest rates. While the Big Six should benefit from additional interest rate hikes that further bolster NIMs and net interest income heading into the last quarter of F2022, Canadian GDP is showing signs of losing momentum and recession concerns have increased.Key highlights include:
-- Overall, the Big Six Canadian banks posted mixed results in Q2 2022, with QOQ earnings down as a result of higher provisions and lower capital markets results, while loan volumes and net interest margins increased.
-- Looking forward to the last quarter of F2022 and into F2023, net interest margins should benefit from higher interest rates. As credit quality metrics normalize from unsustainably low levels, however, a prolonged economic recession would lead to heightened credit quality issues and loan losses.
-- An uncertain operating and macroeconomic environment pose risks to the outlook. However, the Big Six Canadian banks remain well positioned to weather the uncertainty, as they remain flush with liquidity, have high levels of low-cost deposits, and have ample capital levels.
“Asset quality metrics continue to remain at unsustainably low levels, but the actions taken this quarter with respect to PCL on performing loans signal the beginning of a negative credit cycle and we expect to see some deterioration as metrics normalize heading into the last quarter of F2022 and into F2023,” said Carl De Souza, Senior Vice President, North American FIG. “While we expect PCL to continue increasing as a result of ongoing economic uncertainty, higher credit costs will likely be mitigated by higher loan volumes, growth in higher-yielding non-RESL loan volumes, and expanding NIMs.”
Bank of Montreal is a financial services organization. Co. provides a range of retail banking, wealth management and investment banking products and services. Co. serves its clients through three operating groups: Personal and Commercial Banking, which provides financial services to personal and commercial customers; Private Client Group, which provides wealth management products and services to individuals and select institutional segments; and BMO Capital Markets, which provides clients financial and capital markets services to corporate, institutional and government clients.
Scotiabank is a financial services provider in North America, Latin America, the Caribbean and Central America, and parts of Asia. Through its three operating segments: Canadian Banking, International Banking, and Global Banking and Markets, Co. provides a range of advice, products and services, including personal and commercial banking, wealth management and private banking, corporate and investment banking, and capital markets. As of Oct 31 2017, Co. had total assets of C$915,273 million and total deposits of C$625,367 million.
Canadian Imperial Bank of Commerce is a financial institution. Through its three business units, Co. provides a range of financial products and services to individual, small business, commercial, corporate and institutional clients in Canada and around the world. Co.'s Retail and Business Banking business unit provides financial advice, products and services. Co.'s Wealth Management business unit provides integrated advice and investment solutions. Co.'s Capital Markets business unit provides integrated credit and global markets products, investment banking advisory services and research. As of Oct 31 2017, Co. had total assets of C$565.26 billion and total deposits of C$439.71 billion.
National Bank of Canada is a provider of financial services that include banking and investment solutions for individuals and businesses as well as securities brokerage, insurance and wealth management services. Co. operates in three business segments: Personal and Commercial, which encompasses the banking, financing, and investing services; Wealth Management, which comprises investment solutions, trust services, banking services, lending services and other wealth management solutions; and Financial Markets, which encompasses banking services, investment banking services and financial solutions. At Oct 31 2017, Co. had total assets of C$245.83 billion and total deposits of C$156.67 billion.
Royal Bank of Canada is a financial services company that provides personal and commercial banking, wealth management services, insurance, investor services and capital markets products and services. Co. serves personal, business, public sector and institutional clients through offices in Canada, the U.S. and 37 other countries. Co. is organized into five segments: Personal and Commercial Banking, which is comprised of Co.'s personal and business banking operations, and its auto financing businesses; Wealth Management, Insurance; Investor and Treasury Services; and Capital Markets. As of Oct 31 2017, Co. had total assets of C$1.21 trillion and total deposits of C$789.64 billion.
Toronto Dominion Bank provides financial services. Co.'s segments comprised of: Canadian Retail, which include Canadian personal and commercial banking businesses, Canadian credit cards, TD Auto Finance Canada and Canadian wealth and insurance businesses; US Retail, which includes the US personal and commercial banking businesses, US credit cards, TD Auto Finance US, US wealth business and the Bank's investment its subsidiary, TD Ameritrade Holding Corporation; and Wholesale Banking, which provides a range of capital markets, investment banking, and corporate banking products and services. As of Oct 31 2017, Co. had total assets of C$1.28 trillion and total deposits of C$832.82 billion.
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