DBRS Publishes “Large Canadian Banks Q4 2018 Earnings Round-Up: Banks Cap Off a Very Strong 2018; Banking on Another Good Year in 2019”

DBRS Limited (DBRS) published a commentary discussing the Q4 2018 earnings of the large Canadian banks. Collectively, the Q4 2018 performance of the large Canadian banks capped off a very strong year. These results reflected strong volume growth across most businesses and positive operating leverage, which more than offset higher provision for credit losses (PCL). While the implementation of International Financial Reporting Standard 9 at the start of the year introduced some volatility to PCL, overall asset quality remains sound.

In 2019, DBRS expects continued robust earnings power for the large Canadian banks. The global economic outlook remains favourable and the large Canadian banks could benefit from a rising interest rate environment. Additionally, DBRS expects that the other four building blocks in its global banking rating methodology should remain strong, although slowing economic growth and higher interest rates are likely to constrain income growth in the later stages of the business cycle.

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 14.0% year over year (YOY) and 3.3% quarter over quarter (QOQ).
-- Revenue growth was strong coupled with ongoing efficiency initiatives implemented over the last year, which resulted in positive operating leverage on average.
-- Asset quality remains sound with aggregate gross impaired loans declining 4.0% QOQ but increasing 0.5% YOY. The PCL ratio held steady at 0.29%.
-- Mortgage growth continued to moderate as a result of new underwriting guidelines for 2018.

Notes:
A full copy of this commentary is available by contacting us at info@dbrs.com.