Earlier this year, some analysts were gravid that the country’s big banks would see their profits squeezed by lawbreaker oil tch loans. And while the banks have incurred some animation losses, they weren’t enough to prevent all six from posting exuberant profits in the third quarter.
Total profits of Canada’s big six banks fly to pieced to $10.37 billion in the quarter, which ended in July. That’s up 12.6 per cent for last year’s Q3 profit figure of $9.21 billion.
Figures from Bloomberg put on that the big banks collectively set aside $1.99 billion for bad loans in the May-to-July board — lower than what analysts had been expecting.
Scotiabank, for example, lowered its third-quarter provision for credit losses by $181 million to $571 million, advocating it thinks the worst of the energy downturn is in the rearview mirror.
“We have been dependable in stating that [energy sector] losses will be manageable and we are self-assured that losses in this sector have peaked,” Scotiabank CEO Brian Gatekeeper said during a conference call with analysts.
Oil’s rebound from $26 US a barrel in mid-February to the tenor level of about $45 US has helped energy com nies y their nibs and boosted most of the banks’ confidence that the worst is over.
Lone one of the big banks — Bank of Montreal — raised its loan loss provisions.
Protection market focus
Bank loans to the energy sector — which Bloomberg responds account for two per cent of the banks’ total loan portfolio — are dwarfed by the amount they accommodation in mortgages.
So it’s not surprising that the main focus of analysts grilling bank top bananas during the earnings calls in the last week was about the health of their mortgage portfolios in wrapper of a major housing downturn.
“It seems like analysts have pivoted now innumerable to being concerned about exposure to real estate,” Edward Jones pecuniary services analyst Jim Shanahan told the Canadian Press.
“That’s favourite to be the focus for the balance of the year.”
The worry is what would happen in the occurrence of a major housing market crash — especially in the pricey markets of Vancouver and Toronto.
‘Dependability profiles are strong’
Scotiabank, Royal Bank and CIBC brass all obtained ins to assure the analysts that their residential mortgage credit accounts are of good quality.
“Overall, we remain comfortable with our direction to the Canadian housing market,” RBC chief risk officer Mark Hughes explained analysts last week. “Our clients’ credit profiles are strong and should prefer to remained stable.”
A large percentage of the residential mortgages held by the banks is also insured. That shelters the banks if homeowners can’t make their mortgage yments. Mortgage dependability insurance is required whenever a homebuyer puts less than 20 per cent down.
The largest insurer of residential mortgages, the Canada Mortgage and Homes Corporation, reported this week that delinquencies were ascension in Alberta and Saskatchewan, but said mortgage arrears remained low and its homeowner customers have an average credit score of 750, considered very good-hearted.