Canada's Big Six expected to report lower loan-loss provisions as tariff concerns ease
Canada’s Big Six banks are preparing to release third-quarter earnings this week with analysts expecting lower provisions for credit losses compared with the prior quarter.
According to Reuters, the banks are forecast to set aside $5.22bn for potential loan losses, down from $6.37bn in the second quarter, based on LSEG data.
The reduction follows earlier increases when the lenders boosted provisions amid fears of a possible North American trade war.
The Financial Post reported that the banks took “large performing provisions” in the second quarter to prepare for a “potential North American trade war scenario,” said Canaccord Genuity analyst Matthew Lee.
“Three months later, we believe cooler heads may be prevailing,” he said, adding that risk models across the industry were improving or unchanged.
The performance of Canada’s largest banks, which account for about 90 percent of the financial market, is often viewed as a barometer for the broader economy, the Financial Post noted.
Despite ongoing tariff risks, Canadian bank stocks gained eight percent on average between May 30 and July 31, according to the same report.
CIBC analyst Paul Holden said investors are increasingly looking beyond near-term uncertainty.
“We have become increasingly comfortable with the thesis that provisions for credit losses are at or near a plateau and are likely to be lower next year,” he wrote in a note cited by the Financial Post.
He added that while Canada’s economy has not been strong in 2025, unemployment and credit metrics suggest consumers and businesses are holding up.
Still, some analysts cautioned about high valuations.
Jefferies analyst John Aiken warned that the Big Six are close to “overvalued territory” after their second-quarter run-up, the Financial Post reported.
“Any miss on earnings in the third quarter could have significant negative consequences for valuation multiples, with near-term upside likely constrained, even under a modest beat scenario,” Aiken said.
Reuters reported that US tariffs have hurt loan portfolios less than initially feared, with about 92 percent of Canadian exports by value entering the US tariff-free in June under the North American free trade agreement.
Prime Minister Mark Carney has also lifted some Canadian retaliatory tariffs on US goods.
Lee of Canaccord Genuity said “cooler heads may be prevailing with manageable reciprocal tariffs implemented between the CUSMA-bound countries.”
BNN Bloomberg noted that bank valuations are currently trading 15 percent above historical averages, raising questions about sustainability amid weak GDP growth and higher unemployment.
National Bank analyst Gabriel Dechaine said these conditions are “at odds with what has traditionally been a bad thing for bank stocks.”
Bloomberg reported that the S&P/TSX banks index rose more than 14 percent this year, with Royal Bank of Canada hitting a record.
Analysts expect provisions for credit losses to decline from the second quarter but remain above last year’s levels.
Bloomberg also pointed to modest earnings growth, stronger net interest margins, and continued volatility from trade-related policy swings.
Canada’s Big Six — Bank of Montreal, Bank of Nova Scotia, Royal Bank of Canada, National Bank of Canada, Canadian Imperial Bank of Commerce, and Toronto-Dominion Bank — will release results across three days, starting Tuesday with Bank of Montreal and Bank of Nova Scotia.
