Declining PCLs in the banking giants' financial results suggest an improving mood – but there could still be storm clouds ahead
Executives at Canada’s banking giants struck a cautious tone on the economic outlook in third-quarter earnings calls this week, but the Big Six’s Q3 financials pointed to a generally brightening mood on Bay Street even as trade tensions linger.
Five of the country’s largest six banks beat analysts’ earnings estimates for the quarter – with National Bank coming up just short – as aggregate adjusted earnings jumped by 13% sequentially compared with Q2.
But the biggest story to emerge from the earnings announcements was arguably much lower provisions for credit losses (PCLs) among each of the top lenders, signalling that some of the alarm about the potential economic impact of US trade policy on Canada may be easing.
In the second quarter, which coincided with the launch of President Trump’s global “Liberation Day” tariff wave, the Big Six stockpiled a combined $1.8 billion as concerns about a sharp downturn mounted.
This time around, performing PCLs in aggregate have slid to $258 million – and impaired provisions, set aside for loans that have already soured, also declined, albeit more modestly.
Carl De Souza (pictured top), senior vice president and sector lead, North American financial institution ratings at Morningstar DBRS, said the results suggested the banks view the economic outlook for both Canada and the US as more stable, with consumer spending remaining resilient.
Still, that’s not to say they’ve ruled out another unexpected escalation in the trade war. “Despite the positive PCL results, there are still concerns from ongoing trade and tariff uncertainty, along with heightened geopolitical risks,” De Souza told Canadian Mortgage Professional.
“So nobody’s out of the woods yet, but at this point in time things seem to have steadied a little bit. And people are cautiously optimistic.”
Toronto-Dominion (TD) Bank and Canadian Imperial Bank of Commerce (CIBC) reported higher third-quarter profits on Wednesday, ending a strong earnings season for Canada’s Big Six lenders.https://t.co/hsJucuf6SU
— Canadian Mortgage Professional Magazine (@CMPmagazine) August 28, 2025
‘Uncertainty meter’ has dropped, bank execs indicate
Bank of Montreal (BMO) chief executive officer Darryl White said in a call with analysts that the current environment was “just a little easier to call than it was six months ago” and indicated that the path ahead appeared slightly clearer. “Earlier this year, my uncertainty meter was very high,” he said. “Today, it’s less high.”
But he also stressed that Canada appeared to be in the “middle innings” of the trade war, with no sign yet of a deal to lift tariffs even as talks continue between Canadian and US negotiators.
“There are still the negotiations between Canada and the US, and the upcoming CUSMA [Canada-US-Mexico Agreement] negotiations,” De Souza said. “So there are still lots of things on the horizon and uncertainty. But at this point in time, the outlooks are a little steadier compared to the prior quarter.”
Continuing confidence hinges on trade talks, BoC moves
It remains to be seen whether PCLs will continue falling among Canada’s banking giants, with much depending on how those trade talks continue. “The outlook for PCLs depends on a few different things from our perspective,” De Souza said. “It’s the duration and magnitude of the tariffs.
"If the effective rate of the tariffs ends up being worse or longer than expected, then that’ll be negative towards the PCLs. If the tariffs are better than expected, or Trump eliminates them, that’ll be a benefit to the PCLs and they’ll take some reversals from all these performing provisions they took last quarter.”
For now, market watchers can only wait and see how events play out in the weeks and months ahead, with the next Big Six earnings statements likely to arrive around the beginning of December.
The Bank of Canada’s three further scheduled interest rate decisions between now and the end of the year – on September 17, October 29, and December 10 – will also be closely watched by the banking giants as they map out expectations for next year.
And a fresh twist in the trade war can never be ruled out, either, meaning analysts aren’t getting ahead of themselves despite the encouraging news on the PCL front. “It’s a positive sign, but it’s only one quarter. We don’t want to take one quarter as a trend,” De Souza said. “We’ll see how Q4 shapes out and how the negotiations go.”
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