Canadian banks completed their second-quarter results season last week, with the majority reporting higher-than-expected profits, mostly due to lower reserves for potential loan losses, prompting concerns among investors and experts about whether they are overly optimistic about coming dangers.
Canadians, who are already among the most indebted in the industrialized world, are being squeezed by increasing prices and the central bank’s quick interest rate rises, and worries are growing about the amount to which rates must rise further to avoid an inflationary spiral.
Total allowances for credit losses at Canada’s Big Six banks fell 20% in the second quarter from a year ago to about C$23 billion ($18.1 billion).
Many of the banks also predict mortgage growth will slow from pandemic levels, although further business and credit card lending recovery are expected to help offset that.
Already, there is some evidence that consumers and companies are feeling the pinch, with insolvencies up 24% in March from February.
Canadian banks’ share index has gained 2.3% since the lenders began reporting results this week.
While acknowledging that some conditions have worsened, many banks pointed to a firm economy and employment as drivers of earnings growth.
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