a wave of potential loan losses during the global health crisis, the banks were able to shower their investors with double-digit hikes in their quarterly payments, alongside plans to repurchase millions of their own shares. However, as lenders await rises in central bank policy rates, which are expected to boost net interest margins of banks, shareholders may have to bide their time for the next major catalyst.
In a recent report to clients, Paul Holden from CIBC Capital Markets considered if Canadian banks are about to see the weakest quarter of the year for the sector. The financial services analyst estimates an average sequential drop of 1. 6 per cent in adjusted earnings per share for Canada’s Big Six banks, while he projected a modest 3.3 per cent for year-over-year growth. Holden expects the highest year-over-year profit growth to be registered by Bank of Nova Scotia, at 9.1 per cent, while Royal Bank of Canada was singled out for a contraction in adjusted profit per share in comparison to a year earlier.
“The rest of the year should look better given the outlook for interest rates and loan growth. Caution into the quarter, bullish thereafter,” he wrote to clients.
The CIBC Director, who projects a total of six rate hikes through the next year, listed several factors which could supress fiscal first-quarter profit growth, before banks enjoy a boost in net interest margins following increases in central bank policy rates. For instance, Holden anticipates growth in expenses, along with tighter public health restrictions. He also doubts that underlying credit quality would be much of a boon to the bottom line, owing to the Omicron variant of the Coronavirus.
