Canadian banks are set to disclose how they’re coping in the lead-up to a possible recession as they report quarterly earnings this week. Tracking these figures helps us understand what our investors are paying close attention to.
Here are 5 points about the reporting that you need to know:
- Starting with Scotiabank reporting on Tuesday November 29, 2022, RBC and National Bank report on Wednesday (November 30, 2022) while BMO, CIBC and TD all report Thursday. All banks in Canada will disclose their results that will cover the three months ending Oct. 31. During that period, the Bank of Canada raised its key interest rate twice, bringing its key interest rate to 3.75 per cent.
- The central bank is expected to hike rates again at its last decision of the year on Dec. 7.
- Key questions for analysts will be on how much banks are profiting from their loans, measured in one way by the net interest margin, and what the chances are that some won’t be able to pay those loans back, measured by how much money banks are setting aside for potentially bad loans. Provisions on potentially bad loans will be another differentiator, especially since complex accounting rules make the measures an ongoing source of variable versus analyst consensus.
- Interest rates have also slowed the real estate market and mortgage demand, with home sales down 36 per cent in October compared with a year earlier, but banks have also been able to profit from those rising rates as shown by their net interest margins.
- Earnings per share will likely dip slightly from the third quarter but be up a year earlier, with strong loan growth from last year despite the dip in mortgages as commercial loans have remained strong. For next year, analysts are conservatively expecting earnings per share growth of 2.2 per cent, picking up to 4.4 per cent in 2024 as loan growth resumes and other factors stabilize
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