combined profits of about $15.24 billion in the third quarter of this fiscal year, a sharp increase from about $9.75 billion in the same quarter last year. This was amid a shift in cash from provisions of bad loans to profits as the bank CEOs said the economy begins to see signs of growth in many areas. “The economy and our customers have shown remarkable resilience to an evolving landscape of pandemic-related restrictions,” the Bank of Montreal’s chief executive Darryl White said during a conference call with financial analysts. “With those now lifting and vaccination rates continuing to climb, the Canadian and US economies remain poised for the strongest growth in decades.”
However, the earnings reported last week could have been even higher if these companies shrunk their reserves, which they did not, owing to concerns regarding the impacts of the highly contagious Delta variant that is enlarging the number of infections reported in Canada. “It’s really the Delta variant that led to the overall macro factors tempering our release this quarter,” Ajai Bambawale, TD Bank’s chief risk officer, said. “The pandemic is not over. So you should expect continued prudence from us.”
Nevertheless, some experts are of the view that banking giants are being overly cautious by failing to reassess their reserves in response to the recent improvements in the economy. “I think the Canadian banks are holding reserves that are too high for the risk profile of their portfolio, and especially given recent trends from a credit standpoint,” James Shanahan, a senior equity research analyst at Edward Jones, told BNN Bloomberg.
He further noted that in the third quarter, loan growth at Canadian banks, driven by continued strength in mortgage lending, was quite good overall, although it does raise concerns about the potentially overheated housing market. “Canadian banks are delivering loan growth, and the US banks just aren’t. So clearly that’s a significant differentiator for the big Canadian banks versus the US banks.”
