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Prepare for monster bad bank numbers this week: experts

May 25, 2020   Don Horne




Canada’s six-biggest banks are poised to set aside $8.9 billion for souring loans in the fiscal second quarter — a record amount that will wipe out more than half the industry’s profits.

The total is the average estimate of five analysts who attempted to calculate potential loan losses through a fog of uncertainty caused by the coronavirus pandemic and plunging oil prices. The total is three times higher than the first quarter and will be the key reason Canada’s biggest banks will see profits plunge in the period ended April 30 when they report results next week.

The six large lenders are expected to post a 44 per cent earnings decline for the second quarter, the median of estimates compiled by Bloomberg Intelligence. That would be the biggest drop in 11 years, when banks were sideswiped by a global financial crisis.

“It’s going to be bad — they’re going to be taking big allocations and provisions,” Craig Basinger, chief investment officer for Richardson GMP, said in an interview with Bloomberg News. “We’re not overly concerned on that side, but we just think the negative news is going to probably keep weighing them down in the near term.”

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Government relief efforts and measures by banks such as mortgage deferrals and lower credit-card interest rates may just be delaying the reckoning: the mortgage reprieve, for example, kicked in in late March and was good for six months.

A sharp spike in reserves, though, would show how worried banks are for Canadian households and businesses as they emerge from the pandemic and into recession. New accounting standards adopted by the industry in late 2017 require banks to forecast the likelihood of good loans going bad.

(Bloomberg News)


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