Canada’s dominant big six banks are expected to build more credit loss provisions as uncertainty surrounding U.S. tariffs intensifies.
The lenders that include Royal Bank of Canada (RY) and Toronto-Dominion Bank (TD) have already been putting aside more money to cover potentially bad loans.
The building up of reserves comes as the U.S. continues to threaten to impose tariffs of up to 25% on most Canadian imports.
It also comes as unemployment remains elevated across Canada and small and medium-sized businesses struggle financially following the Covid-19 pandemic.
Bank analysts are warning that the increased money set aside to cover loans that sour could negatively impact the lender’s first-quarter earnings.
For the current first quarter of 2025, loan loss provisions are expected to rise as much as 80% for some Canadian lenders such as Bank of Montreal (BMO).
About 60% of Canadians are renewing their mortgages this year and are expected to incur higher monthly payments as a result, which could also lead to more loan defaults and problems for the banks.
Some analysts are forecasting that loan provisions will increase about 70% to $5.6 billion across Canada’s big six banks this year and expect core earnings to decrease about 10% in Q1 2025.
Canada’s banks, which tend to act in concert with one another, begin reporting their fourth-quarter 2024 financial results later this week, starting with Bank of Montreal on Feb. 25.
