Large Canadian Banks Q4 2021 Earnings Round-Up: PCL Reversals on Performing Loans Continue to Boost Performance
Earnings in Q4 2021 were in line with DBRS Morningstar's expectations. Quarterly earnings for the Big Six Canadian banks were boosted by reversals of provisions for credit losses (PCL) on performing loans, continuing a trend seen throughout F2021. Aggregate quarterly unadjusted earnings decreased 4.1% quarter over quarter (QOQ), but increased 9.2% year over year. The QOQ results reflected lower revenues as an 8% decrease in non-interest income driven by continued moderation in capital markets activity from record levels was partially offset by volume driven growth in net interest income. This, combined with a 4% increase in expenses primarily from higher employee-related and variable compensation costs, resulted in negative operating leverage.Key highlights include the following:
-- Overall, Q4 2021 results for the Big Six Canadian banks were in line with our expectations as PCL reversals on performing loans boosted performance.
-- As expected, dividend increases and planned share buybacks were announced after the Office of the Superintendent of Financial Institutions lifted restrictions on capital management activities.
-- Looking forward to F2022, rising interest rates and growth in higher margin non-real estate secured lending (RESL) loan volumes should bolster profitability and help offset a potential increase in PCL from the current unsustainably low levels.
“The persistent low interest rate environment and changes in business mix contributed to continued net interest margin compression in Q4 2021. In F2022, we expect an increasing interest rate environment and an improving growth rate in higher margin non-RESL loans (i.e.; credit cards and auto loans) as an improving economy and robust consumer spending take hold. Higher interest rates should help offset some expected pressure to earnings in F2022, as reversals of PCLs on performing loans are expected to decrease from F2021 levels and capital markets activity is expected to remain more subdued compared with the elevated levels in the first half of F2021. The Big Six Canadian banks remain well positioned going into F2022. The balance sheets of these banks remain strong with robust capital and liquidity metrics, although capital metrics will likely decline from current levels with the resumption of capital management activities,” said Carl De Souza, Senior Vice President, North American FIG.
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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