Canada's banking giants are continuing to roll out their quarterly financial results
Bank of Montreal (BMO) posted better second-quarter earnings than markets had expected, with a solid uptick in net interest income helping offset a ramping-up of reserves for potential credit losses in a turbulent economic climate.
The banking giant reported adjusted earnings on Wednesday morning of $2.62 per share, outpacing analysts’ forecast of $2.54. It said net interest income — a key profitability measure reflecting the spread between interest earned on loans and interest paid on deposits – reached $5.1 billion, narrowly edged out the average estimate of $5.04 billion.
At the same time, the bank increased its provision for credit losses to $1.05 billion, surpassing the $1.03 billion projected by analysts, underscoring concerns over the deteriorating macroeconomic outlook.
Chief executive officer Darryl White touted the bank’s revenue and pre-tax earnings growth across each of its operating groups and highlighted that impaired credit provisions had moderated as performing allowances jumped.
Banking giants continue to stash away funds for souring economy
Canadian financial institutions are increasingly fortifying their balance sheets, preparing for a potential rise in defaults as economic challenges loom — including continued inflationary pressure, interest rate volatility, and geopolitical tensions such as US tariffs. BMO set aside $289 million for loans still considered in good standing, a notable rise from $152 million in the previous quarter.
The elevated allowances reflect not just immediate risks but an overarching caution in the face of unpredictable conditions. This approach mirrors that of other major banks, including Toronto-Dominion Bank and Scotiabank, which also reported higher-than-anticipated provisions for performing loans in their Q2 earnings.
Scotiabank’s latest results revealed it fell short of expectations, largely due to a significant jump in loan loss provisions — a sign that credit quality concerns are not isolated to any one institution.
Meanwhile, Toronto-Dominion Bank’s earnings took a hit as well, with the bank amidst a restructuring plan. Analysts, however, interpreted these increased reserves across the sector as a prudent measure rather than an indication of widespread credit deterioration.
BMO’s higher exposure to commercial lending — particularly following its 2023 acquisition of San Francisco-based Bank of the West — has added complexity to its credit portfolio. The bank has been wrestling with impaired loans in that segment, although management remains confident in its outlook for improvement.
The recent performance suggests a nuanced picture: while revenue growth and interest margins are providing tailwinds, the industry remains vigilant. Canadian lenders are walking a tightrope — delivering solid financial results while proactively insulating themselves against a more challenging economic environment that may still lie ahead.
National Bank also released its quarterly financial results this morning, with Canadian Imperial Bank of Commerce (CIBC) and Royal Bank of Canada (RBC) to follow suit tomorrow (May 29).
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