Canadian banks are preparing themselves for more bad loans this year

Canada's biggest banks have been setting aside hundreds of millions of dollars in case customers can't pay off their loans, including mortgages.

Canada’s biggest banks have been setting aside hundreds of millions of dollars in case customers can’t pay off their loans, including mortgages.

This comes as economic uncertainty and the heightened cost of living weigh on Canadian households and businesses.

Royal Bank of Canada, TD Bank, CIBC, Scotiabank, Bank of Montreal and National Bank reported quarterly earnings this week and all said they have topped up their loan loss provisions.

At the same time, the banks have reported multi-billion-dollar profits in the most recent quarter.

These loan loss provisions are set aside in case a bank’s customers aren’t able to pay off their loans, which could mean the bank would take a loss by absorbing the remaining balance on those loans.

Mortgages, for example, involve a bank loaning an approved amount to a customer so they can eventually own their home by making smaller incremental payments to the bank.

Canada’s total mortgage debt reached nearly $2 trillion last year, according to a report from Equifax, and as many more households are expected to apply for mortgage renewals.

In the case of Bank of Montreal, it set aside an additional $746 million last quarter, which was down from the $1.011 billion a year earlier.