Profits at the big Canadian banks dropped in fiscal 2019, as loan loss provisions began returning to more normal levels, reports DBRS Ltd.
In a new report, the rating agency said that the Big Six banks saw earnings decline by 5.4% year over year in fiscal 2019 (year-end Oct. 31) and by 5.8% from the prior quarter.
The weak year-end results brought fiscal 2019 “to a disappointing close as restructuring charges and higher provision for credit losses (PCLs) negatively affected results,” DBRS said.
The report noted that earnings were lower across all the banks’ business segments on a sequential basis, and that three of the Big Six also recorded restructuring charges in the fourth quarter.
The banks’ capital markets businesses were hampered by elevated volatility, which negatively impacted both investment banking revenues (underwriting and advisory fees) and trading revenues.
At the same time, their core banking businesses faced persistent challenges.
“Net interest margins remain under pressure, particularly in the banks’ U.S. and international businesses,” the report said.
On the bright side, DBRS said that credit quality “remains sound” at the big banks, even as provisions increase “from unsustainably low levels.”
“Despite the sharp rise in PCL, we view the large Canadian banks as well positioned to absorb higher provisions,” said Robert Colangelo, senior vice president, global financial institutions group, at DBRS.
Still, the future earnings outlook remains cloudy.
“Given these results and the continued uncertainty and weakening global growth, we expect earnings growth for these banks to moderate in [fiscal] 2020,” Colangelo said.