Canada’s big banks generated solid earnings in the fourth quarter (Q4), and the outlook for the year ahead remains relatively positive, says a report published Tuesday by Toronto-based DBRS Ltd.

Collectively, the banks reported modestly weaker results on a quarter-over-quarter basis (down by 1.3%), but earnings increased year-over-year (up 11.6%), “primarily reflecting strong fundamentals and disciplined cost management,” the report says.

Q4 earnings for the six domestic systemically important banks, “were supported by favourable economic conditions, with earnings and net interest margins positively impacted by the recent interest rate hikes in both Canada and the United States.”

Asset quality remained strong, as aggregate gross impaired loans declined by 2.2% quarter over quarter, and were down by 16.8% year over year, the report says, “largely reflecting improvements in commercial loan portfolios, particularly in the oil and gas sector.”

Looking ahead to 2018, DBRS expects the credit ratings for the large Canadian banks to “remain relatively stable in light of the sound fundamentals of these banks and the generally favourable economic conditions expected in 2018.”

New underwriting rules that are due to come into effect on Jan. 1, 2018, are not expected to result in a material decline in residential mortgage originations next year, the report says.

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