Canada's six largest banks posted strong third-quarter results as capital markets activity, margin gains and improving credit quality outweighed sluggish loan demand
Canada's major banks rounded out a strong third quarter, posting mid- to high-single-digit revenue and earnings growth as robust wholesale activity, expanding retail margins and a brightening credit picture converged to fuel results, according to a new analysis by Fitch Ratings.
Aggregate third-quarter revenue across the country's six federal domestic systemically important banks (Royal Bank of Canada, Toronto-Dominion Bank, Bank of Montreal, Canadian Imperial Bank of Commerce, Bank of Nova Scotia and National Bank) rose six per cent from the second quarter.
Aggregate adjusted net income grew a healthier 10 per cent on a linked-quarter basis. The fiscal quarter ended July 31 for most institutions.
The gains were broadly distributed. Canadian personal and commercial banking revenue climbed four per cent sequentially, helped by an additional calendar day in the quarter and a modest improvement in net interest margins.
Capital markets revenue rose six per cent, with contributors varying from bank to bank but generally reflecting stronger trading income and increased investment banking mandates.
Wealth management revenues expanded seven per cent, lifted by favourable market conditions and growth in fee-generating client assets.
"Every business segment delivered record pre-provision, pre-tax earnings with sustained momentum in Capital Markets and Wealth," said BMO Financial Group chief executive Darryl White after the bank reported a 22 per cent year-over-year gain in adjusted net income to $2.9 billion. Its capital markets division posted a record quarter, with pre-provision, pre-tax earnings of $903 million and global markets revenue up 27 per cent.
RBC delivered a record quarterly net income of $6.02 billion, up from $5.41 billion a year earlier, with capital markets earnings climbing 16 per cent to $1.54 billion. The bank's wealth management segment was the star performer, with net income jumping 32 per cent to $1.44 billion. CIBC's capital markets division posted a 34 per cent increase in net income to $722 million, while Scotiabank's Global Banking and Markets segment earned $647 million, up 37 per cent year over year.
Credit quality improves, but tariff risk lingers
One of the more encouraging storylines from the quarter was a meaningful improvement in credit quality.
Aggregate provisions for credit losses (PCLs) fell five per cent from the prior quarter, driven primarily by recoveries on performing loans. The average PCL-to-gross-loans ratio eased to 0.37 per cent in the third quarter from 0.40 per cent in the second, according to Fitch Ratings.
Most banks maintained their 2026 PCL guidance, which Fitch expects to come in roughly in line with 2025 levels. The ratings agency cautioned, however, that renewed tariff tensions with the United States could prompt banks to revisit their performing-loan provisions as broader economic effects become clearer.
Impaired loan pressure remains concentrated in specific commercial verticals including real estate, transportation, telecommunications and cable, and consumer goods manufacturing. The sector's median gross impaired loan ratio edged up to 0.91 per cent from 0.90 per cent in the second quarter — a modest deterioration that analysts say is manageable given current capital buffers.
CIBC noted that its exposure to tariff-sensitive lending represents less than one per cent of its total loan book. TD Bank's chief financial officer Kelvin Tran described reserve levels as comfortable while flagging continued monitoring of tariff-related developments.
"We continue to accelerate the execution of our strategy, driving another quarter of strong financial results including double-digit growth in net income," CIBC chief executive Harry Culham said following the bank's results, which showed reported net income of $2.41 billion, up 15 per cent year over year on a reported basis and 26 per cent on an adjusted basis.
Loan growth modest, deposits shifting
Overall loan growth was modest. Aggregate gross loans rose three per cent in the quarter, led by commercial and corporate lending; residential mortgage volumes were up just one per cent. Banks have guided to mid-single-digit loan growth for 2026, and most continue to actively manage unsecured consumer credit exposures.
On the deposit side, aggregate balances rose three per cent, though trends varied across the sector. Some institutions faced competitive pricing pressure, and Fitch noted a structural shift away from higher-cost term deposits toward transactional and savings accounts — a trend the ratings agency expects to support deposit margin expansion over the medium term.
The peer median reported net interest margin dipped one basis point to 1.60 per cent in the third quarter and edged down three basis points on average to 1.74 per cent.
Despite the marginal compression, positive operating leverage has become a sustained multi-quarter trend as banks shift from cost discipline toward selective reinvestment aimed at improving long-run efficiency. The average adjusted efficiency ratio held steady at 54 per cent.
Capital strength intact
Capital positions remained solid across the sector. The median common equity Tier 1 (CET1) ratio held at 13.5 per cent in the third quarter — unchanged from the second quarter and 200 basis points above regulatory minimums, which Fitch characterised as prudent given the current macro environment.
RBC's CET1 ratio improved to 13.5 per cent from 13.2 per cent a year earlier, while CIBC reported a ratio of 13.4 per cent. Scotiabank and BMO came in at 13.1 per cent and 13.0 per cent, respectively.
Banks continued to return capital to shareholders through a combination of buybacks and dividend increases. Scotiabank repurchased 8.6 million shares in the quarter and distributed $6.3 billion to shareholders year-to-date through buybacks and dividends combined. BMO's return on equity reached 14 per cent, up 200 basis points from a year earlier.
On the markets side, the broader earnings season drew an enthusiastic reaction from analysts tracking Canada's big bank stocks. Jefferies analyst John Aiken described TD's results as "the strongest beat of the quarter," while flagging that RBC's 17.9 per cent return on equity justified the bank's valuation premium. All six institutions beat consensus earnings-per-share estimates by between 5.9 and 13.1 per cent.
Canadian bank stocks now trade at approximately 15 times forward earnings, their highest multiple since 2010, according to data from Reuters, a signal that investors continue to view the sector's earnings quality as durable, even as pockets of uncertainty persist on the credit and macro fronts.
