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Investors in Canada’s major banks will be looking for signs of loan growth, impacts of the Delta variant and hints of what the Big Six may do with their cash reserves when they report this week.

The banks are widely expected to further unwind the record-breaking amounts of money they set aside last year — at least $16.5 billion across the Big Six — to cover widespread loan defaults that never materialized.

Shareholders, however, have already largely factored in the earnings boost from the reserve wind-down, as was already seen in U.S. bank earnings last month, said James Shanahan, senior equity research analyst for North American financials at Edward Jones.

“In some cases there were earnings beats of 10, 20, 30 per cent, and the stocks were down. So the market clearly isn’t going to reward the Canadian banks if they deliver huge earnings beats and it’s just simply related to reserve releases.”

Loan growth will be a key area to watch as the economy reopens. Many people and companies have used extra cash during the pandemic to pay down debts, putting pressure on a key area for the financial sector.

Canadian bank lending hasn’t been hit as hard on loans as the U.S. though, thanks largely to residential mortgage lending that drives about two-thirds of Canadian bank loan portfolios, Shanahan said.

The mortgage business has been brisk in Canada this year as both home sales and prices spiked, which has benefited the banks but has also increased concerns about household debt.

The Bank of Canada said in a financial review in May that high household debt and imbalances in the housing market both intensified over the past year.

“The housing market boom and the corresponding rise in mortgage debt support economic growth in the short term but increase the risk to the Canadian economy and financial system over the medium term.”

Debt levels also prompted Fitch Ratings Inc. in July to downgrade its rating on the operating environment for Canadian banks by a notch to reflect “elevated levels of private and public sector indebtedness, which Fitch views as negative for long-term credit conditions and business volumes.”

Nigel D’Souza, a financial services investment analyst at Veritas Investment Research, said overall debt levels are a potential concern, but the monthly carrying costs of those debts is the more important factor.

“It’s a potential risk, but until interest rates start to move higher, and the cost of servicing those debts start to move higher, I don’t think you’re going to see it translate to any credit risk.”

The more immediate headwind for banks could be slowing activity on the capital markets front, D’Souza said. Banks have seen a boost to trading revenue, as well as underwriting and advisory fees as more companies raise money and make public offerings in what has been elevated market activity in general.

Capital markets revenue could fall by seven per cent, quarter over quarter, estimates CIBC analyst Paul Holden, which will help push down overall earnings per share by an estimated average of 2.5% from the previous quarter.

“Transaction volumes for equities, derivatives and fixed income all point to lower trading revenue,” Holden said in a note.

Looking ahead, the other big unknown for banks is the question of dividend increases and share buybacks, which were banned by Canada’s banking regulator last year when the economic impacts of the pandemic were unclear.

Those restrictions are still in place, but analysts expect them to be lifted at the end of October, when the Office of the Superintendent of Financial Institutions has said it will be adjusting the amount of capital that banks are required to hold.

Like so much else in financial outlooks though, delays in reopenings due to the Delta variant could push the timing on dividends further out.

With so much uncertainty in the transition, investors may be somewhat cautious in their response to earnings in the quarter, much like they were with U.S. earnings, Shanahan said.

“The overall reaction to large U.S. bank earnings was muted, and I would kind of expect that to be the case.”

Scotiabank and Bank of Montreal report on Tuesday, followed by National Bank and Royal Bank on Wednesday and CIBC and TD Bank on Thursday.