<\/p>\n
Easing financial pressures are expected to slow decline in credit quality, boost loan demand.<\/p>\n
Last week\u2019s rate cut by the Bank of Canada is set to slow the deterioration in banks\u2019 credit quality over the past year and may reignite demand for loans, the rating agencies say.<\/p>\n
In a new report, Moody\u2019s Investors Service said the start of an easing cycle by Canada\u2019s central bank will likely serve as a catalyst to slow the decline in credit quality that the big banks have been facing for several quarters, and that has driven them to boost their provisions for credit losses.<\/p>\n
In a separate report, Morningstar DBRS said higher credit loss provisions and weaker net interest income weighed on the banks\u2019 second-quarter results.<\/p>\n
Aggregate provisions rose 1.3% in the quarter to $4.2 billion, and provisions on impaired loans increased for the seventh straight quarter, rising 3.1% to $3.7 billion, it said. Gross impaired loans were up 10.5% in the quarter to $25.3 billion.<\/p>\n
\u201cThe higher-for-longer interest rate environment is weighing on borrowers, with credit loss provisions and gross impaired loans now beyond pre-pandemic levels by six basis points and 11 basis points, respectively,\u201d DBRS reported.<\/p>\n
Nevertheless, the Big Six saw earnings rise 1.9% from the previous quarter on the strength of \u201chigher underwriting and advisory fees, wealth management revenues, and a modest reduction in non-interest expenses,\u201d it said.<\/p>\n
Overall, revenue growth was flat in the second quarter, loan growth was weak, and margins were stable, DBRS said.<\/p>\n
However, the start of monetary easing is expected to rejuvenate credit trends.<\/p>\n
In response to the rate cut, the big banks all immediately lowered the prime rates charged on variable-rate loans, such as home equity lines of credit, variable-rate mortgages and commercial loans, Moody\u2019s noted.<\/p>\n
This reduction in prime rates \u201cwill have an immediate effect on variable-rate borrowers, whose interest rates have risen since the Bank of Canada began its monetary policy tightening cycle in March 2022,\u201d it said.<\/p>\n
DBRS echoed Moody\u2019s, saying it expects the start of monetary easing to slow the decline in credit quality and boost demand for loans.<\/p>\n
\u201cEasing inflation, the first overnight interest rate cut in four years, and the expectation of further interest rate cuts may stimulate loan demand, particularly residential mortgage growth, which remains muted from a lack of housing demand despite a recent spike in home listings,\u201d DBRS said.<\/p>\n
These improvements in credit quality should, in turn, support the banks\u2019 profitability into 2025, Moody\u2019s said.<\/p>\n
If the Bank of Canada cuts rates again this year, Moody\u2019s said, \u201cwe expect these banks will likely recover previously taken provisions for credit losses on performing loans later in the year, which is earlier than anticipated.\u201d<\/p>\n
\u201cWe expect margins at the six large banks to be relatively stable through the year, keeping them well positioned should the Bank of Canada or the U.S. Federal Reserve cuts rates later this year,\u201d it said.<\/p>\n
DBRS added that, while \u201cthe operating environment remains challenging,\u201d the big banks have \u201cample\u201d liquidity and solid capital that\u2019s well above the regulatory minimum requirements.<\/p>\n
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Easing financial pressures are expected to slow decline in credit quality, boost loan demand. Last week\u2019s rate cut by the Bank of Canada is set to slow the deterioration in banks\u2019 credit quality over the past year and may reignite demand for loans, the rating agencies say. In a new report, Moody\u2019s Investors Service said […]<\/p>\n","protected":false},"author":1,"featured_media":1844,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"class_list":["post-1843","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-bez-rubriki"],"featured_image_src":{"landsacpe":["https:\/\/relinvestmentsgroup.com\/wp-content\/uploads\/2024\/06\/Banks-77-1140x445.jpeg",1140,445,true],"list":["https:\/\/relinvestmentsgroup.com\/wp-content\/uploads\/2024\/06\/Banks-77-463x348.jpeg",463,348,true],"medium":["https:\/\/relinvestmentsgroup.com\/wp-content\/uploads\/2024\/06\/Banks-77-300x200.jpeg",300,200,true],"full":["https:\/\/relinvestmentsgroup.com\/wp-content\/uploads\/2024\/06\/Banks-77.jpeg",1240,827,false]},"_links":{"self":[{"href":"https:\/\/relinvestmentsgroup.com\/en\/wp-json\/wp\/v2\/posts\/1843","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/relinvestmentsgroup.com\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/relinvestmentsgroup.com\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/relinvestmentsgroup.com\/en\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/relinvestmentsgroup.com\/en\/wp-json\/wp\/v2\/comments?post=1843"}],"version-history":[{"count":1,"href":"https:\/\/relinvestmentsgroup.com\/en\/wp-json\/wp\/v2\/posts\/1843\/revisions"}],"predecessor-version":[{"id":1845,"href":"https:\/\/relinvestmentsgroup.com\/en\/wp-json\/wp\/v2\/posts\/1843\/revisions\/1845"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/relinvestmentsgroup.com\/en\/wp-json\/wp\/v2\/media\/1844"}],"wp:attachment":[{"href":"https:\/\/relinvestmentsgroup.com\/en\/wp-json\/wp\/v2\/media?parent=1843"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/relinvestmentsgroup.com\/en\/wp-json\/wp\/v2\/categories?post=1843"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/relinvestmentsgroup.com\/en\/wp-json\/wp\/v2\/tags?post=1843"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}