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CIBC, TD cap round of earnings that largely beat subdued expectations

TORONTO — CIBC and TD Bank wrapped a round of quarterly bank results Thursday that, like the Canadian economy itself, largely beat what were fairly low expectations.

Analysts had been expecting lower profits as banks grapple with slower mortgage growth, less business activity and the financial pressure of putting money aside for potentially bad loans.

But while there have been concerns, especially on loans to the office sector and on Canadian mortgages, banks still reported growth in most segments.

Overall, profits among the Big Six banks amounted to about $12.5 billion for the quarter ending Jan. 31.

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"We continue to successfully navigate through a fluid economic backdrop," said CIBC chief executive Victor Dodig on an earnings call Thursday.

The bank reported that it had cut its exposure to the U.S. office sector over the past year and put provisions aside in case its remaining loans run into trouble.

On Canadian real estate, Dodig repeated what bank CEOs have been saying since the Bank of Canada hiked its key rate to five per cent: mortgage borrowers are adjusting their spending, and many have savings in reserve.

"They're employed, they're working through things. That doesn't mean they're not anxious."

Canadians are managing in part as the economy itself defies expectations.

Statistics Canada reported Thursday that real gross domestic product increased by an annualized rate of one per cent in the fourth quarter, beating economists' expectations and the Bank of Canada's forecast.

Looking ahead, banks are no longer forecasting a recession, but instead a lull until interest rates start to come down.

"We expect North American economic growth to remain subdued in the first half of this year before recovering towards the end of the year on the back of lower interest rates," said BMO chief executive Darryl White.

RBC chief risk officer Graeme Hepworth said the economic outlook is improving overall.

"The market continues to gain confidence that interest rates have peaked to the current cycle, and the probability of a hard landing of the economy is decreasing."

Despite rising optimism, banks did all add to their provisions for credit losses this quarter as the lagging effects of higher rates still haven't fully played out. There also remains uncertainty as to when rate cuts might actually happen.

Provisions among the six banks totalled $4.11 billion.

Banks also reported that they're well-capitalized, with reserves well in excess of what regulators require.

Overall, the results show banks are taking a cautious approach that's paying off, given the financial uncertainty, said Shilpa Mishra, managing director in BDO's capital advisory services.

"They continue to be stable.”

In BDO's fourth quarter debt market report, she noted loan issuance was up five per cent in the quarter, compared with nine per cent year-over-year growth in 2022.

While a clear slowdown in growth, it's still notable as the economy has defied logic by avoiding a recession, said Mishra.

She said there's clear pressure coming from higher rates, but the underlying pressures aren't substantial.

“There is nothing structurally wrong with the economy right now.”

Along with CIBC and TD, Royal Bank, National Bank and Scotiabank also beat analyst expectations. BMO was the lone standout that fell behind as it more acutely felt the pressure lying under the surface.

BMO's White said the bank's results were affected by the "challenging economic backdrop."

"Our first-quarter results were impacted by revenues that fell short of expectations, due in part to environmental pressure," he said.

This report by The Canadian Press was first published Feb. 29, 2024.

Companies in this story: (TSX:CM, TSX:TD, TSX:BMO, TSX:RY, TSX:BNS)

Ian Bickis, The Canadian Press