Desjardins Group, Canada’s largest six-bank and credit union consortium, consistently ranks highly in every category of Fitch’s ratings hierarchy. (Photo: Artur Widak/NurPhoto via Getty Images) (NurPhoto via Getty Images)
Fitch Ratings predicts that Canada’s big banks are expected to see “moderate profit growth” in 2024 and 2025 amid a weaker economy, with Royal Bank of Canada (RBC) leading the way among its peers.
In the credit rating agencies’ 2024 Canadian Bank Peer Review, Desjardins Group, Canada’s federation of six largest banks and credit unions, consistently ranked at the top of the ratings hierarchy in all categories due to its size and conservative risk appetite and risk management.
“Stability in the Canadian economy should support banks’ financial performance in the second half of 2024,” Maria Gabriella Khoury, senior director at Fitch Ratings, said in a statement. “Canadian banks’ risk profiles are broadly conservative, supported by well-managed exposures and underwriting practices, with low loan and credit losses.”
Fitch said RBC (RY.TO) should “continue to outperform” peers due to its “leading market position and distribution network.” RBC’s acquisition of HSBC Canada, which closed last spring, should further boost earnings, the report said.
TD’s (TD.TO) earnings will be “driven by growth in its Canadian and U.S. retail businesses and announced cost savings,” but Fitch noted that TD’s ongoing anti-money laundering investigation could have a negative impact. Earnings could be affected by fines and penalties as well as costs associated with “strengthening compliance infrastructure,” Fitch said.
Canadian Imperial Bank of Commerce (CIBC — CM.TO) is considered “the most domestically exposed” of Canadian banks, with more than 90% of its revenue coming from Canada, according to the report. As such, Fitch said CIBC’s revenue growth will hinge on “the expansion of its Canadian retail business and a focus on its mass affluent and private wealth franchises in Canada and the U.S.”
The report said National Bank of Canada (NA.TO) and Bank of Montreal (BMO — BMO.TO) “will benefit from their commercial banking franchises,” with BMO also seeing revenue growth from its acquisition of U.S.-based Bank of the West.
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Fitch said Scotiabank (BNS.TO) plans to exit high-risk markets in Latin America but the move is “unlikely to have a meaningful impact in 2024.” The Fitch report was written before Scotiabank bought a minority stake in U.S. regional bank KeyCorp.
Fitch’s outlook comes amid what it calls a “stagnant” economic backdrop. The report noted that the Bank of Canada’s monetary easing cycle has begun, but that “economic activity has some time to recover” and that “household spending is likely to remain sluggish until at least 2025.”
The rating agency projects Canada’s unemployment rate, currently at 6.4%, to remain at just over 6% through 2026. The report also says the headline consumer price index will fall to 2% by the end of 2025 and the Bank of Canada’s overnight interest rate will reach 2.5% by the end of 2026.
John MacFarlane is a senior reporter for Yahoo Finance Canada. Follow him on Twitter. Follow.
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