Canada's biggest banks beat 3rd quarter expectations as trade pressures ease

Canada's five biggest banks reported their third quarter earnings this week, setting aside less money for loan-related losses as the Canada-U.S. trade tensions that pushed lenders to build their reserves eased.

Canada's five biggest banks reported their third-quarter earnings this week, with all of them benefiting from smaller-than-expected provisions as some of the Canada-U.S. trade tensions that pushed lenders to build their reserves eased.

Canada's five biggest banks set aside less money for loan-related losses in the third quarter, they said, as the U.S. trade tensions that initially pushed them to build their reserves eased.

Bank of Nova Scotia and Bank of Montreal kicked off earnings week on Tuesday. The Royal Bank of Canada and National Bank reported on Wednesday followed by Toronto Dominion Bank and Canadian Imperial Bank of Commerce on Thursday.

"Five out of six banks [beat] expectations, with only National Bank slightly missing this time," wrote Derek Holt, vice-president and head of capital markets economics at Scotiabank, in a note to clients.

The banks had built up reserves during the second quarter, fearing a macroeconomic slowdown when trade tensions were at a peak amid U.S. President Donald Trump's tariff war threats.

While Canada has yet to achieve a trade deal with the United States — and many Canadian businesses continue to face uncertainty — the outlook has improved considerably from early April.

Executives like Kevin Tran, TD Bank's chief financial officer, and Dave McKay, the chief executive officer at RBC, cautioned that continued uncertainty around a trade deal could slow the economy while triggering higher inflation.

"Things can change and there's still that big uncertainty around [the Canada-United States-Mexico Agreement] and tariff negotiations that I think hold investors and hold commercial clients from investing capital," said McKay.

Meanwhile, CIBC chief executive Victor Dodig told analysts he expects global trade tensions may result in slower growth and higher inflation, but that declining interest rates could help support economic growth.

Michael Dehal, senior portfolio manager at Dehal Investment Partners with Raymond James, called Scotiabank and BMO's results "encouraging" as the earnings week kicked off on Tuesday.

"We are seeing tensions easing and there is optimism that there will be a trade deal coming soon," he said. "I feel more confident today than I did last quarter when the banks reported."