Newspaper article The Canadian Press

Canada's 5 Biggest Banks Earn Total of $6.55 Billion in Second Quarter: Canada's Five Biggest Banks Earn $6.55B in Q2

Newspaper article The Canadian Press

Canada's 5 Biggest Banks Earn Total of $6.55 Billion in Second Quarter: Canada's Five Biggest Banks Earn $6.55B in Q2

Article excerpt

TORONTO - Canada's five biggest banks posted a four per cent increase in profits during the most recent quarter, earning a combined $6.55 billion as they benefited from domestic consumer banking operations.

That's up from $6.28 billion a year ago.

But trouble could be ahead next year as tightened consumer lending habits start to erode growth at the banks.

Analysts gave a mixed response to the second-quarter earnings, which on the surface appeared stronger, but were also cluttered with a variety of other factors that clouded the fundamental results.

"There's clearly a deceleration of earnings growth," said Brad Smith, a senior financial services analyst at Stonecap Securities in an interview Thursday.

"These are not robust numbers."

Coming out on top was TD Bank (TSX:TD) which saw profits rise nearly 21 per cent to $1.69 billion, though chief executive Ed Clark warned that slowing loan growth and persistently low interest rates will impact growth in the rest of the year.

Loans are expected to be a crux for the banks in coming quarters as more Canadians hit the ceiling on what they can afford.

"Canadians are leveraged at unusually high levels, and they can get away with it because the cost of debt is low," said Peter Routledge, an analyst at National Bank Financial.

Numerous studies have found that household debt is on the rise. A quarterly report from TransUnion released Thursday suggests that consumers are on average $432 deeper into debt than they were a year ago, affected particularly by growth in car loans.

"Once you get to a certain level of debt, either banks will not be willing to lend, or consumers won't be willing to borrow," said Routledge.

"There's sort of an upper limit, and the Canadian households are approaching it."

Routledge said banks will also have to contend with more revenue volatility linked to instability in Europe. …

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