Canada banks seen benefiting from stronger markets

Mon May 25, 2009 9:55am EDT
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By Andrea Hopkins

TORONTO (Reuters) - Canadian banks are set to report another profitable quarter this week, defying global trends, as a market recovery early in the year offsets rising loan losses and thin income from interest and fees.

The performance of Canada's Big Six banks is expected to slip from the relative high-water mark of the first quarter as credit deteriorates and lending growth slows.

Even so, trading income was a bright spot, and analysts said anyone who has been watching global financial firms struggle will likely be impressed by Canada's banking resilience.

"I think what they'll see is a very profitable sector in one of the worst downturns that we've seen in recent memory, perhaps since the Depression," said Robert Sedran, a banking analyst at National Bank Financial.

"When you look at the world right now, the fact that the Canadian banks stand on their own, with no government capital injected into them, the fact that they are still making money ... I think is a noteworthy positive."

The country's banking system was ranked last year as the world's soundest by the World Economic Forum, and analysts said Canada's conservative lending practices, strong capital and receding write-down risks remain their biggest strengths.

Canada's Big Six lenders -- Royal Bank of Canada, Toronto-Dominion Bank, Bank of Nova Scotia, Bank of Montreal, Canadian Imperial Bank of Commerce and National Bank of Canada -- report results between May 26 and May 29. Two smaller banks, Laurentian Bank of Canada and Canadian Western Bank, report on May 27 and June 4, respectively.

While analysts expect earnings per share for the eight banks to fall by between 12 percent and 21 percent from year-ago levels -- and by a similar margin from the first quarter -- fears of dividend cuts have receded.   Continued...