Large Canadian Banks Q2 2025 Earnings Round-Up: Performing PCLs Ramp Up and Loan Demand Wanes as Tariff Uncertainty Persists

Global trade and tariff policy uncertainty remains elevated, weakening the outlook in North America (see our commentary "North America Macroeconomic Update: On-and-Off Tariff Policy Weakens the Outlook," published June 4, 2025). As a result, aggregate provisions for credit losses (PCL) on performing loans more than tripled quarter over quarter (QOQ) as the Big Six Canadian banks incorporated more pessimistic macroeconomic factors and downside scenario weightings into their respective provisioning models along with expert credit judgement overlays where applicable. Although the operating environment has become more challenging with weakening consumer spending and business investment, the Big Six remain well positioned with ample liquidity, stable funding, and solid capital levels.

Key highlights include:
-- The Big Six's Q2 2025 adjusted earnings decreased 7.8% sequentially, driven by notably higher PCL on performing loans and lower noninterest revenue. Aggregate loan growth stalled and was relatively flat QOQ.
-- Asset quality deterioration continued, driven by PCL on performing loans that increased significantly to $1.8 billion in Q2 2025 from $498 million in the prior quarter, with QOQ increases at each of the Big Six banks.
-- Capital levels at the Big Six remain sound and provide sufficient cushion to absorb heightened losses. Further, the Office of the Superintendent of Financial Institutions has levers it can pull to provide support, as do the federal and provincial governments.

"Asset quality deterioration continued, driven by unsecured retail and commercial lending portfolios. Aggregate total PCL increased 16.6% QOQ to $6.1 billion in Q2 2025, and aggregate total PCL as a percentage of average net loans and acceptances increased by 14 basis points (bps) QOQ to 63 bps," said Carl De Souza, Senior Vice President & Sector Lead, North American Financial Institution Ratings. "The magnitude of the impact on overall performance will be determined by the eventual size and duration of the tariffs, the degree of retaliation, government support provided, and mitigating actions taken by clients and banks. While there may be headwinds to revenue and loan growth, the more significant impact would likely be on credit quality with an extended period of higher-than-expected delinquencies, PCL, and loan losses."