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(Repeated story published on May 29 without content replenishment)
By Nicolas Saminather
TORONTO, May 29 (Reuters) – Canadian banks wrapped up the second-quarter earnings season last week, with Maximum reporting better-than-expected earnings, largely thanks to reduced amounts they set aside for long-term credit losses, raising questions among investors and analysts about whether they are too positive about the risks ahead.
Rising costs and immediate interest rate hikes by the central bank are putting pressure on Canadians, who are already among the most indebted in the developed world, and concerns are developing about the extent to which rates still want to rise into an inflationary spiral.
“Recessions start when the economy is at its peak,” said Brian Madden, chief investment officer at First Avenue Investment Counsel.
Canadian banks “are probably releasing provisions on existing loans due to overconfidence in their basic (positive) economic situation and underestimating the likelihood of adverse situations, which I think is excessive risk. “
Total provisions for credit losses at Canada’s six largest banks fell 20 percent in the current quarter from a year ago to about C$23 billion ($18. 1 billion), the lowest point in the past two years, according to the banks’ financial statements.
Consumers and businesses are already feeling the pressure, with insolvencies https://www. ic. gc. ca/eic/site/bsf-osb. nsf/fra/br04638. html#t1 up to 24% from March to February.
Many banks also expect lending expansion to slow from pandemic levels, the continued recovery in business and credit card lending deserve help to offset this.
The Royal Bank of Canada reported the biggest drop in allocations, down 30% from a year ago. Threat director Graeme Hepworth told analysts that the bank had adjusted its provisions to reflect emerging economic obstacles, but this was offset by the release of pandemic-related reserves.
Canadian Imperial Bank of Commerce, which did not meet estimates in the higher provisions component, and Toronto-Dominion Bank recorded the smallest year-over-year declines in LCA.
“We like the messages heard” from TD, which has withheld “a smart amount” of provisions on macroeconomic risks, CIBC capital markets analyst Paul Holden wrote in a note Thursday. the future. “
Despite the downward trend in recent quarters, ACLs are 21% above pre-pandemic levels.
“They constitute provisionsArray. . . it may not be built as temporarily as I expected,” said Rob Colangelo, senior credit manager at Moody’s Investors Service.
The Canadian bank equity index has gained 2. 3% since lenders began reporting the effects this week, compared with a 1. 8% increase in Toronto’s broader equity benchmark, which reduced its underperformance since the March peak.
They remain below their old average trading value relative to future earnings, while providing higher dividend yields than their U. S. counterparts. USA
While acknowledging that some situations have deteriorated, many banks highlighted the strength of the economy and employment, as well as continued business investment, as drivers of profit expansion and improved credit quality.
“It’s a strange world, it rarely is,” Laurent Ferreira, a leading executive at Canada’s national bank, said Friday during his call to analysts. “You have a forged economic context. . . and tons of pessimism about an imaginable recession. “
($1 = 1. 2742 Canadian dollars)
(Reporting through Nichola Saminather in Toronto; Editing via Chizu Nomiyama)