A rise in bad loan provisions at Canadian banks suggests that the lenders may be bracing for a shaky economy, according to Reuters. Indeed, the fourth-quarter earnings of Canadian banks showed a spike in overall bad loan provisions to nearly C$4 billion. The report states that this figure is the highest since the pandemic era.
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“The banks largely use these to manage expectations. They’re focusing on cost savings and layoffs. So they need to give that backdrop, and it’s not an unreasonable backdrop,” Verecan Capital’s analyst Colin White was quoted to have remarked.
In addition, RBC (TSE:RY) CEO Dave McKay cautioned that rates may remain higher than pre-pandemic levels amid speculations that central banks have concluded their tightening cycle. He also warned of a slowing economy, citing signs of a decelerating labor market.
Meanwhile, fourth-quarter earnings for the banks were mixed. Indeed, impaired loans for residential mortgages, real estate, and construction were also up from the previous quarter. This is likely making the banks more cautious when it comes to approving new loans.
Elsewhere, expenses rose due to one-time severance costs as the large banks slashed over 10,000 positions globally.
Which is the Best Canadian Bank to Invest In?
Overall, LB stock remains the leader in upside potential here. This Hold-rated stock offers 20.51% against its average price target of C$31.83. Meanwhile, with an average price target of C$61.13, BNS stock is the laggard, as this Hold-rated stock offers investors 0.67% upside potential.
