Weak market conditions weighed on the earnings of the large Canadian banks in their fiscal first quarter (Q1), and the outlook for the year ahead remains challenging, says DBRS Ltd. in a new report.
The rating agency reports that the big banks saw collective Q1 earnings decline by 7.8%, quarter over quarter, due to a combination of a surge in market turmoil and an increase in loan-loss provisions.
“Generally, the U.S. and international businesses of these banks continued to post strong performances, while the capital markets businesses were adversely affected by a slowdown in client activity,” the DBRS report states.
The banks also saw provisions for credit losses (PCL) rise but, DBRS says, this increase is due primarily to a change in the economic outlook, resulting in higher provisions for loans that are still performing.
“Despite a rise in PCL, overall asset quality remains sound, with the PCL ratio rising a modest two basis points to 0.31%,” the report says.
For the rest of the year, DBRS says, it, “expects earnings growth for the large Canadian banks to be tempered, given the weaker-than-expected start to the year and slowing economic growth, which is likely to constrain income growth.”