Canadian Big Six Banks 2025 Outlook: Uncertainty in the Operating Environment Has Potential to Dim the Light at the End of the Tunnel

Monetary policy easing cycles in North America, particularly by the Bank of Canada, will provide some much-needed relief in debt-servicing costs to heavily indebted consumers and businesses; however, we expect further credit deterioration heading into F2025 before provisions for credit losses (PCL) begin to moderate in the second half of the fiscal year. The operating and macroeconomic environments still face some challenges with risks skewed heavily to the downside as a result of heightened policy uncertainty and geopolitical risks.

Key highlights include:

-- Our overall F2025 credit rating outlook for the Big Six banks is largely stable, as we expect a moderation in PCL and a generally positive economic growth outlook for North America to result in improved earnings in F2025.

-- The potential impacts from U.S. policy changes, particularly tariffs, and continued geopolitical risks from regional conflicts pose downside risks to an otherwise improved outlook.

-- Capital levels at the Big Six remain sound and provide sufficient cushion to absorb potential losses. Further, the Big Six can take actions to boost capital as needed and, more recently, have begun to explore alternative forms of capital relief such as synthetic risk transfers.

"We expect to see gradual revenue growth in F2025. If loan growth ends up being around the mid-single-digit range, we expect net interest income gains to be limited with relatively stable NIMs as lower deposit costs should soften the impact from lower rates. Relief from lower debt servicing costs may spur increased loan activity, particularly residential mortgage lending," said Carl De Souza, Senior Vice President & Sector Lead, North American FIG. "However, with mortgages repricing at still higher rates as the mortgage debt maturity wall hits in 2025, recent mortgage regulatory rule changes may provide borrowers with more selection when shopping rates, potentially leading to intensified mortgage pricing competition."