Canada’s largest banks face a pivotal earnings test as tariffs and loan risks mount
Canada’s Big Six banks are set to open first‑quarter earnings season in late February with shareholders focused on how long record profits could coexist with rising credit risk and intensifying trade tensions with the United States.
Scotiabank is scheduled to kick things off on February 24, followed by Bank of Montreal and National Bank of Canada on February 25, with Royal Bank of Canada, Toronto‑Dominion Bank and CIBC rounding out the week on February 26.
Strong finish to 2025 sets the stage
The upcoming results followed one of the strongest quarters on record for the country’s lenders.
RBC ended fiscal 2025 with $20.4 billion in annual profit and fourth‑quarter net income of $5.43 billion, lifting its medium‑term return‑on‑equity target to at least 17%.
TD, meanwhile, reported adjusted Q4 net income of $3.91 billion and raised its dividend by 2.9%.
Scotiabank’s fourth‑quarter net income climbed to $2.21 billion, with adjusted EPS of $1.93, while National Bank posted Q4 profit of $1.06 billion and a higher dividend after completing its Canadian Western Bank acquisition.
BMO and CIBC each beat earnings expectations, with BMO’s adjusted EPS surging to $3.28 and CIBC’s net income rising 16% to $2.18 billion.
“All in all, a good year for them – and I think that’s attributable to the diversification of their business models and their geographic diversification as well,” Carl De Souza, senior vice president and sector lead, North American financial institution ratings at Morningstar DBRS, told Canadian Mortgage Professional.
However, impaired loans are still expected to post a slight increase this year. “It’s not exactly a shocker that impairments are going up in Canada,” De Souza said. “And I think it’s reasonable, the quarter-over-quarter increase. It wasn’t something where you did a double take.
“But I would say we expect further deterioration, at least in the short- to medium-term heading in fiscal 2026. And that’s what the provisions showed this [last] quarter: an uptick, but nothing alarming or anything like that.”
Trade war keeps credit and housing in focus
Those figures arrived as the banks continue to navigate a fraught trade backdrop that has weighed on Canada’s housing and mortgage outlook.
Escalating US tariffs have stalled a nascent housing rebound, with RBC Economics previously warning that monetary policy cannot resolve trade uncertainty or offset the impacts of a trade war.
In a recent outlook, RBC’s John Stackhouse framed 2026 around president Donald Trump’s tariff agenda and the looming review of the Canada–US–Mexico Agreement, while industry voices described tariffs as “the biggest question mark” over the housing market this year.
Brokers also flagged the risk that “with US tariff risks and global economic pressures, mortgage rates may remain volatile,” a reminder that funding costs could surprise lenders and borrowers alike.
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