1 December 2023

In the fourth quarter of 2023, the Canadian banking sector witnessed a mix of financial outcomes, illustrating the complex interplay between macroeconomic factors and individual bank strategies. The period was characterized by mixed earnings across the major banks, highlighting different approaches and challenges each institution faced in a changing economic landscape. A significant factor in this quarter’s results was the impact of higher interest rates, which led to increased provisions for bad loans. These provisions are set aside by banks as a safeguard against potential loan defaults, a necessary measure especially when interest rates rise, as higher rates can lead to increased borrowing costs for customers, thereby elevating the risk of loan defaults. This year, the provisions for bad loans emerged as a critical element in shaping bank earnings, reflecting the cautious stance of banks in an environment of economic uncertainty and changing monetary policy.

Royal Bank of Canada (RBC)

Royal Bank of Canada showcased a strong quarter, reporting a profit of $4.1 billion, a rise from $3.9 billion in the same period last year. Adjusted earnings were $2.78 per share, slightly above analyst consensus of $2.65 per share. However, RBC also experienced a significant increase in its provisions for credit losses, totaling $720 million, reflecting a cautious approach to potential future loan defaults.1

Toronto-Dominion Bank (TD)

Toronto-Dominion Bank’s fourth quarter results were significantly affected by challenges, as it missed earnings estimates due to higher provisions for bad loans and notable restructuring charges. The bank reported provisions for credit losses at $878 million, surpassing the $844.5 million anticipated by analysts. This financial quarter saw the bank earning $1.83 per share on an adjusted basis, which fell short of the $1.90 average estimate from a Bloomberg survey. As part of its response to these challenges, TD is implementing a substantial workforce reduction and office space downsizing, aiming for significant cost savings in future years. While this restructuring is a strategic move to adapt to evolving market conditions, the bank has raised concerns regarding its ability to meet medium-term earnings targets.2

Bank of Montreal (BMO)

Bank of Montreal reported a decrease in profit, earning $1.6 billion compared to $4.5 billion in the same quarter last year. The bank’s adjusted earnings per share of $2.81 fell short of the expected $2.86. Despite setting aside $446 million in provisions for credit losses, which was lower than analysts anticipated, BMO faced challenges with a drop in total revenue and rising expenses, largely due to acquisition-related costs and investments.3

Bank of Nova Scotia (BNS)

The Bank of Nova Scotia experienced a notable decrease in net income, reporting $1.39 billion compared to $2.09 billion a year earlier. This decline was attributed to a significant increase in expenses and higher provisions for credit losses, which more than doubled to over $1.2 billion. The increase in costs was driven by factors like higher personnel and technology-related expenses, impacting the bank’s overall profitability.4

Canadian Imperial Bank of Commerce (CM)

CIBC reported an increase in fourth quarter profits, earning $1.48 billion, or $1.53 per share, compared to $1.185 billion, or $1.26 per share, in the same quarter last year. This increase in profits was accompanied by a dividend hike, driven by lower-than-expected provisions for bad loans and a rebound in retail banking profits. The bank’s provisions for credit losses totaled $541 million, primarily for loans already past due, with a relatively small portion of $63 million for loans that might later become impaired. This prudent provisioning contrasts with the Bank of Nova Scotia’s unexpected and significantly higher provisions. Looking ahead, CIBC’s chief risk officer forecasts a modest uptick in impaired loan losses, projecting them to settle in the mid-30s basis points range, slightly exceeding the earlier forecast of 25 to 30 basis points.5

National Bank of Canada (NB)

National Bank of Canada reported a positive quarter with a profit of $768 million, an increase from $738 million in the previous year. The bank’s adjusted earnings of $2.44 per share exceeded the expected $2.25. While setting aside $115 million in provisions for credit losses, less than analysts anticipated, the bank saw an 11% increase in total revenue but also faced a 19% rise in expenses, mainly due to higher salary and technology costs.6

The diverse results across these Canadian banks highlight the varying strategies and challenges they face, including managing loan loss provisions, adapting to market conditions, and balancing revenue growth with expense management.

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  1. https://www.theglobeandmail.com/business/article-rbc-earnings-fourth-quarter-results-2023/
  2. https://financialpost.com/fp-finance/banking/td-cuts-thousands-jobs-restructuring-charge-earnings-miss
  3. https://www.theglobeandmail.com/business/article-bmo-earnings-fourth-quarter-results-2023/
  4. https://www.cbc.ca/news/business/scotiabank-earnings-1.7041965
  5. https://financialpost.com/fp-finance/banking/cibc-earnings-beat-expectations
  6. https://www.theglobeandmail.com/business/article-national-bank-earnings-fourth-quarter-results-2023/
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