The Big Six banks enjoyed revenue growth and stronger earnings in their fiscal third quarters — but the risk is to the downside as economic uncertainty persists, says Morningstar DBRS Inc. in a new report.
The big banks saw aggregate revenues rise by 4.1%, on a quarter-over-quarter basis, in fiscal Q3, and adjusted earnings were up 13.4%, DBRS reported.
Both net interest income and non-interest income increased in the third quarter.
Fee-based revenues rose, along with higher advisory and underwriting fees, it noted. Trading-related revenues remained elevated in the quarter too, although they’ve eased alongside market volatility.
Overall, net income came in stronger as provisions for credit losses on performing loans dropped in the quarter — reducing total provisions by 27.5% in the quarter — as some of the uncertainty surrounding the economic outlook eased in the quarter.
“Nonetheless, global trade and tariff policy uncertainty persists, along with geopolitical volatility,” the report said.
In particular, the outlook for Canada’s economy “remains cloudy and dependent on the outcome of the negotiations and pending trade deal between Canada and the U.S.,” it said.
Against that backdrop, DBRS said that it doesn’t expect provisions to peak until fiscal 2026.
The outlook for credit loss provisions “depends on the magnitude and duration of tariffs, the level of fiscal support provided and the performance of key macroeconomic indicators,” it said.
“While there may be headwinds to revenue and loan growth, the more significant impact would likely be on credit quality with an extended period of higher-than-expected delinquencies, PCL and loan losses,” it said.
Nevertheless, the banks’ capital and liquidity levels remain solid, and able to absorb credit losses, the report said.
“We anticipate that the Big Six will sustain [regulatory capital] ratios above 12.5% based on the current minimum regulatory threshold of 11.5%. In light of this, we expect the Big Six to look for ways to effectively deploy excess capital, including additional share buybacks, as long as the environment remains conducive,” it said.