What do the Big Six’s Q3 earnings say about the Canadian economy?

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That formed part of a turbulent landscape for major financial institutions, DBRS Morningstar senior vice president and team lead, banking, Carl De Souza (pictured top), told Canadian Mortgage Professional.

“The Big Six banks continue to face a challenging operating environment characterized by persistent inflation and higher interest rates, macroeconomic uncertainty, and the US regional banking developments,” he said.

“So all of that taken into account, the Q3 sequential aggregate adjusted earnings were relatively flat and financial performance was negatively affected by a significant increase in provisions for credit losses (PCLs), as well as an uptick in non-interest expenses.”

Provisions on performing loans and impaired loans climbed higher across the top financial institutions – and while net interest margins posted modest quarterly expansion, they took a hit in the banks’ US segments and business lines, De Souza noted, reflecting the recent market turmoil there.

With a potential recession in the cards, the reality of materially higher borrowing costs for creditors would probably amplify credit deterioration at top lenders, he added, while net interest income and net interest margins could also face pressure from milder lending volumes, tighter margins, and higher funding costs.

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