Canadian banks' lending margins take spotlight as economy slows

The ability to profit from higher interest rates is becoming a crucial differentiator among Canada’s big banks, with most other parts of their businesses poised to weaken as the economy slows.

Three of the country’s six largest banks beat earnings estimates in the fiscal fourth quarter, with only one of them managing to do so without the benefit of widening net interest margins. Of the three lenders that missed analysts’ projections, two suffered from contracting margins -- the difference between what banks earn on loans and what they pays for deposits.

“Margins are important right now because fees are coming down and provisions are going up,” Paul Gulberg, an analyst at Bloomberg Intelligence, said in an interview. “The only thing that’s going to keep your earnings up is interest income, so you do want a higher margin.”