Canada’s banks are showing improved financial strength through lower provisions for bad loans and stronger revenues from mortgages, credit cards and insurance products, Standard & Poor’s said in an analysis released Monday.
S&P noted that revenues related to capital markets activities continued to fall, reflecting broadly weaker underwriting activity due to lower corporate financing volumes and weak equity markets.
The banks’ domestic personal and commercial banking divisions were stronger, boosted by revenues from mortgage, credit card and insurance products, S&P said.
“Notwithstanding the challenges ahead, the strength of the big Canadian banks is their solid retail and commercial franchises, which remain strong in earnings performance and asset quality, a reflection of the strong albeit slowing Canadian economy,” S&P said.
S&P forecasts small improvements in asset quality, weak revenues related to capital markets activity, further domestic price competition, and renewed interest in acquisitions in the United States for the remainder of 2003.
S&P said that although much of the damage from large writeoffs to the telecommunications and energy industries in the past year is now behind the banks, credit problems loom in other sectors. It cited auto parts and airlines as areas of concern.
S&P said it’s unclear what the impact will be on banks SARS.
The outlook for Investment banking also remains poor given the dearth of potential mergers and acquisitions and underwriting deals in the pipeline. This might reduce revenues in the banks’ current third quarter, S&P said.
The S&P ratings for Canada’s big banks were:
- Bank of Montreal: Double-A negative with a negative trend;
- Bank of Nova Scotia: A-plus, stable;
- CIBC: A-plus, stable;
- Laurentian: A-minus;
- National Bank: A, stable;
- Royal Bank:, Double-A negative, stable; and
- TD Bank: A-plus stable.