Canadian bank earnings will continue to be crimped by high borrowing costs and slower economic growth until central banks start cutting interest rates, analysts say.
The country’s largest lenders are expected to post slower profit growth in their second-quarter earnings this week, with analysts anticipating that earnings will drop as much as 4 per cent, year-over-year.
The banks are emerging from a tumultuous year marked by climbing reserves for potential loan losses, mounting costs and higher capital requirements – funds the lenders are required to set aside as a cushion against an economic downtown.
“We believe that the Canadian bank earnings trends are close to an inflection point; last year’s triple whammy of higher minimum regulatory capital requirements, credit reserve building, and negative operating leverage from double-digit non-interest expense growth should moderate…
