Canadian Banks Stockpile More Cash As Loan Defaults Rise

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TORONTO — Canadian banks are setting aside more money for sour loans as the oil price shock continues to take its toll on borrowers in Western Canada.

Royal Bank said Thursday it has boosted its provision for credit losses to $460 million, up $178 million from a year ago, while CIBC earmarked $324 million for bad loans in the second quarter, an increase of $197 million from a year earlier.

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CIBC says many of the companies on its bad-loan "watch list" have moved to "impaired" status. (Photo: Alamy)

Laura Dottori-Attanasio, CIBC's chief risk officer, says the bulk of the increase can be attributed to companies in the oil and gas sector, although the bank also saw an uptick in bad loans in its credit card and personal lending portfolios.

"You may recall that last quarter, I mentioned that we added nine names to our oil and gas watch list,'' Dottori-Attanasio said during the bank's second-quarter earnings call, referring to energy companies that could struggle to repay their debts.

"Well, this quarter the majority of those names moved to impaired status.''

CIBC also added one more company to the watch list during the second quarter, Dottori-Attanasio said.

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A TD Bank branch in Washington, D.C. Like other Canadian banks, TD has more than doubled the money it set aside to cover bad loans. (KAREN BLEIER/AFP/Getty Images)

RBC chief risk officer Mark Hughes said rising unemployment in Alberta and other oil-dependent provinces is leading to higher writeoffs in the bank's credit card portfolio.

"We are also seeing a slight uptick in provisions in our personal and small business loans in these regions,'' Hughes said during a conference call Thursday to discuss RBC's second-quarter results.

"However, I would stress these portfolios are very small relative to the size of our Canadian retail portfolio.''

TD Bank, which also reported its second-quarter results Thursday, said it has put aside $584 million for bad loans, up by $209 million from a year ago, but down by $58 million from the previous quarter.

RBC, CIBC and TD all reported higher second-quarter results, despite the increases in loan-loss provisions.

CIBC reported a quarterly profit of $941 million, up three per cent compared to the same period last year, while RBC reported net income of $2.57 billion during the quarter, up three per cent from a year ago.

TD reported a second-quarter profit of $2.05 billion, up about five per cent from the same quarter last year.

The Bank of Montreal, which reported its quarterly results on Wednesday, saw its profit slip nearly three per cent from a year ago to $973 million as it boosted its provision for credit losses to $201 million, up from $161 million a year ago.

Scotiabank will report its earnings next week.

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