Low angle view of Skyscrapers in downtown Toronto during the day

Despite rising provisions for credit losses, Canadian banks managed solid earnings growth in the second quarter, says Fitch Ratings.

The rating agency said in a report that the Big Six banks and Desjardins Group saw adjusted net income rise by 6.6% year over year.

“In general, strong domestic banking, wealth management and capital markets performance, and improved cost controls, helped offset significant increases in loan loss provisions,” Fitch said.

Adjusted revenues were up 10.2% year over year, the report found, with the growth driven by activity in Canadian banking, higher assets under management in wealth management, and increased trading and advisory revenues.

Against this revenue growth, loan-loss provisions were up by 57.3% in aggregate, Fitch said, “reflecting the impact of tighter monetary policy on retail and corporate customers.”

Fitch also noted that the banks’ gross impaired loans ratios continued to rise, averaging 0.64% in the second quarter — up from 0.59% in the first quarter of 2024 and from 0.43% in the second quarter of 2023.

“The ‘higher for longer’ rate environment and softer economic conditions, including higher levels of unemployment, will also likely mean continued softness on the bank’s consumer loans, particularly credit cards and unsecured loans,” the report said.

Loan growth also slowed in the quarter, Fitch noted.

Looking ahead, Fitch expects the banks to “continue to produce single-digit loan growth in this high interest rate environment.”