Large Canadian Banks Q2 2024 Earnings Round-Up: Sequential Earnings Boosted by Expense Control as Impaired PCLs Rise

Credit deterioration progressed with impaired provisions for credit losses (PCLs) up 3% sequentially, representing 90% of total PCL in Q2 2024. On June 5, 2024, the Bank of Canada started its monetary policy easing cycle. This should provide some much needed relief to heavily indebted Canadian consumers and businesses that are being pressured in a higher-for-longer interest rate environment. The operating environment remains challenging but the Big Six continue to maintain ample liquidity and solid capital.

Key highlights include:

-- Q2 2024 sequential adjusted earnings increased modestly on higher noninterest income and a slight reduction in noninterest expenses, which more than offset a reduction in net interest income (NII) and higher PCL.

-- Impaired PCL increased for the seventh-consecutive quarter. However, the Bank of Canada's 25-bp interest rate cut on June 5, 2024, should provide some needed relief to Canadian borrowers as debt continues to reprice at maturity. The timing and pace of anticipated future rate cuts will determine the magnitude of the impact.

-- The monetary policy easing cycle may provide a boost to muted loan growth and moderating net interest income. The Big Six, however, maintain sound liquidity and adequate capital levels and remain well-positioned to manage through the challenging operating environment.

“The initial 25-bp interest rate cut announced by the Bank of Canada on June 5, 2024, along with any additional rate cuts, should provide some relief and slow down credit deterioration, reducing the magnitude of the payment shock as debt continues to reprice at maturity. The magnitude of the impact will depend on the timing and pace of future interest rate cuts,” said Carl De Souza, Senior Vice President, North American FIG. “The Big Six have generally increased their respective CET1 ratios over the past few quarters in light of heightened regulatory capital requirements. The Big Six all maintain adequate capital buffers above the regulatory minimum threshold of 11.5%, and we anticipate they will maintain CET1 ratios above 12.5%.”