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The Canadian banks enjoyed solid earnings in 2019, but 2020 is looking tougher, says Fitch Ratings in a new report.

The rating agency said that the banks’ fourth quarter earnings showed solid loan growth and resilient margins. Revenues were up compared with the same quarter in 2018, although higher loan loss provisions and weaker capital markets weighed on returns.

Looking ahead to next year, Fitch said the challenges to bank earnings are expected to mount.

“We expect to see margin compression, higher provisioning expenses, lower commercial loan growth and lower capital markets transaction activity,” said Mark Narron, director at Fitch Ratings, in a statement.

Some of these headwinds already started showing up in the banks’ 2019 results.

Fitch reported that, on average, the banks’ provisions for credit losses as a share of net loans rose from 29 basis points (bps) in 2018 to 34 bps in 2019.

Capital markets activity was “soft” at the largest banks in Q4, but this was offset by solid performance in wealth management, Fitch said. Wealth management revenues rose by 6% on average in the fourth quarter, and by 10% for fiscal 2019.

Overall margins were largely flat, Fitch said, adding that margin pressure started to emerge in the banks’ U.S. and international operations due to falling rates.

“The three Fed rate cuts in the U.S. pressured Canadian banks’ earnings in their U.S. businesses and pressure will likely continue into fiscal first-quarter 2020 with the last cut announced in October 2019,” said Narron.

“Banks also signalled the possibility of one Bank of Canada policy rate cut in the latter part of 2020, which would put added pressure on margins,” he added. “However, banks’ outlooks for consolidated [margins] are largely stable or modestly down.”

The banks also reported stronger capital positions, Fitch noted, as they added and average of 17 bps in common equity tier 1 capital in 2019. However, they are also facing higher regulatory capital demands, which limits their flexibility for deploying that capital.