Big Six banks were resilient in Q1 despite persistent risks: Fitch

Strong capital markets results and lower loan loss provisions led to net income growth for big Canadian banks in the first quarter of 2021, Fitch Ratings says.

In a new report, the rating agency reported that the Big Six banks generated quarterly profits that were up between 3% and 26% year over year. Combined, the Big Six reported $15 billion in quarterly net income, up from $13.3 billion in the same quarter last year.

“Capital markets businesses continued to outperform following a record 2020,” Fitch said. “Supportive monetary policy and healthy market volatility continued to drive double-digit growth in fixed income and equity trading revenue.”

At the same time, the banks’ wealth management divisions made strong contributions to earnings, Fitch said — as both high-transaction volumes and market gains “supported fee income and assets under management/assets under administration growth.”

Lower provisions also helped drive stronger year-over-year performance, “as improved macroeconomic forecasts resulted in lower charges against performing loans,” the report said.

Fitch reported that gross impaired loan ratios were largely unchanged at the Big Six, and that core banking businesses “showed signs of incremental recovery” even as consumer loan volumes remained depressed.

The banks’ regulatory capital ratios were either flat or up as much as 50 basis points from the prior quarter, Fitch noted, indicating that “banks are well positioned to fund an emerging economic recovery.”

Despite the strong results, Fitch cautioned that risks remain elevated.

“Downside risks related to the coronavirus health crisis remain relevant, given uncertainty over the economic recovery and the scale and timing of credit losses over the coming quarters,” the report said.

Fitch noted that the banks “have signalled credit quality deterioration” in the months ahead. Further, “while loans have almost completely exited pandemic-related deferral programs with little impact on credit quality to date,” Fitch warns that “the range of possible credit losses remains wide.”

Additionally, the low-rate environment has boosted the housing market and mortgage debt, Fitch said, noting that this represents “incrementally higher risk to the banking system over the longer-term, particularly in the context of lower fiscal support capacity.”

James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.