Canada’s big banks delivered solid profit growth in the second quarter (Q2), Toronto-based rating agency DBRS Ltd. says in a new commentary.
The banks enjoyed continued revenue growth in the second quarter, which outpaced their expense growth, producing positive operating leverage.
Collective net income for Canada’s large banks was up by 6.7% quarter over quarter, and up 10.9% on a year-over-year basis, DBRS says.
“These improved results reflected growth across most business segments, continued expense discipline and lower provision for credit losses,” the report states. “While economic conditions remained favourable, commercial loan growth slowed and growth moderated in Canadian residential mortgage lending, reflecting the impact of rising interest rates and the new mortgage underwriting rules effective Jan. 1, 2018.”
The foreign components of the large Canadian banks “continued to deliver strong performances” in Q2, DBRS states, and these businesses are contributing a growing share of overall earnings.
The U.S. businesses of Bank of Montreal, Canadian Imperial Bank of Commerce, Royal Bank of Canada and Toronto-Dominion Bank were boosted by volume growth, higher interest rates, and U.S. tax reforms, which lowered their tax rates.
“DBRS expects the strong earnings momentum of these U.S. businesses to continue in the second half of 2018,” the report states.
Overall, asset quality at the big banks remained sound, “largely reflecting current economic trends.”
DRBS “remains concerned” about elevated housing prices, particularly Toronto and Vancouver, “which could lead to a real estate market correction in Canada.”
That said, the rating agency believes that the large Canadian banks are, “well positioned to absorb a higher level of provisions as a result of any adverse changes,” and their capital levels remain strong.