Canadian banks set to report latest results as mortgage shocks continue

Canadian banks are set to report their latest financial results after a second quarter that was notable for its economic steadiness.

While there’s still room for surprises, Canadian banks are set to report results after a second quarter that was notable for its economic steadiness.

The quarter marked a sharp contrast from a year earlier, when bank failures in the U.S. and Switzerland created worries of contagion. At the same time, the possibility of an economic hard landing loomed as central banks worked to tame inflation through higher interest rates.

By comparison, the latest quarter was fairly tame — despite the high-profile issues at TD Bank Group related to money-laundering controls — with encouraging data on the economic front for inflation and still historically low levels of mortgage delinquencies.

Just this week, Statistics Canada reported inflation fell to 2.7 per cent in April, down from 2.9 per cent in March, which boosted financial market odds of a June rate cut above 50 per cent.

But with both the timing and pace of rate cuts uncertain, and the many Canadian mortgages up for renewal soon at significantly higher rates, analysts will keep focusing on the issue of how well bank loans are expected to stand up.

“We believe credit quality is still top of mind for investors,” said RBC analyst Darko Mihelic in a note on the upcoming bank earnings, which kick off Thursday with TD.

The rest of the banks report next week, and overall, Mihelic is expecting earnings will dip from both last quarter and last year as economic conditions hamper growth.

His estimates on bank provisions for credit losses haven’t changed much, but he said, “we continue to see signs of credit deterioration, and we are still keenly aware that mortgage renewal shock continues.”