Canada’s Major Banks Increase Provisions for Bad Loans Amid Profitable Quarter

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Four of Canada's six big banks have posted quarterly results so far this week, and all four of them are setting aside a lot more money to cover bad loans. (Brent Lewin/Bloomberg)

Three of Canada’s largest banks, Royal Bank, TD Bank, and CIBC, have reported a significant increase in the money set aside for bad loans in their latest quarterly results, reflecting a cautious approach despite posting substantial profits.

Uptick in Provisions for Credit Losses

According to CBC News, all three banks revealed their financial results on Thursday, showing a marked increase in provisions for credit losses. This metric is crucial in banking, indicating the amount reserved to cover loans that are at risk of default.

  • Royal Bank: Canada’s largest lender, reported setting aside $720 million for bad loans, an 89 percent increase from $381 million a year ago.
  • TD Bank: Allocated $878 million in provisions, up 42 percent from $617 million last year.
  • CIBC: Reserved $541 million, marking a 24 percent rise from the previous year’s figure.

This trend follows a similar announcement from Scotiabank earlier in the week, which set aside nearly $1.3 billion for potentially soured loans.

Scotiabank’s profitability was dragged down by having to set aside more than twice as much money to cover potentially bad loans. (Evan Mitsui/CBC)

Profitability and Dividend Increases

Despite the growing concerns over bad loans, the banks remain profitable:

  • Royal Bank reported a profit of $4.13 billion, up from $3.88 billion a year earlier, and increased its dividend to $1.38 per share.
  • TD Bank saw a decline in profit from $6.67 billion to $2.89 billion but raised its dividend to $1.02 per share.
  • CIBC‘s profits rose from $1.19 billion to $1.48 billion, with a dividend increase to 90 cents per share.

Economic Context

The increase in provisions comes amidst economic uncertainty, with high-interest rates potentially impacting loan repayments. The banks’ strategy to bolster their provisions suggests a cautious stance in an unpredictable economic environment.

Implications for the Banking Sector

The latest financial results and the increase in provisions for credit losses highlight the delicate balance that banks are maintaining between profitability and risk management. As they navigate through economic uncertainties, these measures are crucial for ensuring financial stability.