DBRS Publishes “Large Canadian Banks Q3 2018 Earnings Round-Up: Volume Growth and Efficiency Initiatives Fuel Strong Results”

DBRS Limited (DBRS) published a commentary discussing the Q3 2018 earnings of the large Canadian banks. Collectively, the Q3 2018 performance of the large Canadian banks was strong when compared with both last year and sequentially. These results show continued earnings momentum, fueled by growth across all business segments and the benefits from ongoing efficiency initiatives implemented over the last year. However, the net interest margin at the all-bank level remained relatively stable. Credit quality continued to remain sound despite the sharp increase in aggregate provisions for credit losses (PCLs), which was primarily due to the Day 1 impact on The Bank of Nova Scotia’s PCLs on performing loans as a result of its recent acquisitions. On an adjusted basis, aggregate PCLs were up a modest 6.7% quarter over quarter (QOQ). However, trade uncertainty continues to weigh on the economic outlook for Canada. While DBRS notes that any negative impact to economic growth would occur over time, it considers the large Canadian banks to be well positioned to deal with any potential adverse impacts from the ongoing trade disruption.

The Bank of Nova Scotia (DBRS: Long-Term Issuer Rating: AA, Stable Trend), Bank of Montreal (DBRS: Long-Term Issuer Rating: AA, Stable Trend), Canadian Imperial Bank of Commerce (DBRS: Long-Term Issuer Rating: AA, Stable Trend), National Bank of Canada (DBRS: Long-Term Issuer Rating: AA (low), Stable Trend), Royal Bank of Canada (DBRS: Long-Term Issuer Rating: AA, Positive Trend) and The Toronto-Dominion Bank (DBRS: Long-Term Issuer Rating: AA, Positive Trend) are discussed in the research commentary.

Summary highlights include the following:

-- Collectively, net income for the large Canadian banks increased by a solid 9.0% year over year (YOY) and 3.2% QOQ.
-- Revenue growth was strong, and expenses benefited from ongoing efficiency initiatives implemented over the last year, which resulted in positive operating leverage on average.
-- Asset quality remained strong. The 28.8% QOQ increase in PCLs was largely related to BNS’s Day 1 impact on performing loans related to its recent acquisitions.
-- Commercial loan growth outpaced consumer lending, as growth in Canadian residential mortgages continued to moderate.

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