Canada’s large banks enjoyed strong results in the fiscal third quarter ended July 31(Q3 2018), with collective net income rising by 3.2% from the previous quarter, and by 9% on a year over year basis, according to a commentary from Toronto-based DBRS Ltd.
The rise in profits was powered by a combination of robust revenue growth and ongoing cost control efforts which also boosted the banks’ operating leverage. Revenues were up by 5% from the previous quarter, and they rose by 7.3% year over year
“These results show continued earnings momentum, fuelled by growth across all business segments and the benefits from ongoing efficiency initiatives implemented over the last year,” the credit rating agency says in a news release. Net interest margins remained relatively stable and credit quality remains sound, DRBS adds.
The large banks are particularly enjoying healthy growth in their U.S. and international businesses.
“These businesses continue to contribute a larger portion to overall earnings compared with prior years,” the DRBS report states. “Overall, strong results of the U.S. businesses of Royal Bank of Canada, Toronto-Dominion Bank, Bank of Montreal and Canadian Imperial Bank of Commerce were driven by volume growth, higher interest rates and lower tax rates following changes in U.S. tax law.”
Looking ahead, DBRS continues to expect strong results from the banks’ U.S. businesses, against the backdrop of favourable economic conditions in the U.S.
Although trade uncertainty continues to weigh on the economic outlook for Canada, the credit rating agency notes that any negative impact to economic growth would occur over time.
It considers the banks “well positioned to deal with any potential adverse impacts from the ongoing trade disruption.”
“With a growing global economy and a rising interest rate environment, DBRS expects that the earnings power of the large Canadian banks will continue to be robust over the near to intermediate term,” the report concludes.