TORONTO — A sustained drop in energy prices since last year and rock-bottom interest rates have created a challenging operating environment for the banks, but most of Canada's biggest lenders have managed to weather the storm and beat expectations.
Both TD Bank and CIBC reported strong earnings growth on Thursday, following similarly positive reports from Bank of Montreal, Royal Bank and National Bank earlier this week. Scotiabank (TSX:BNS) reports its results on Friday.
Toronto-Dominion Bank (TSX:TD) grew its third-quarter net profit by 7.5 per cent to $2.266 billion, or $1.19 per share. On an adjusted basis, earnings were $1.20 per share, up from $1.15 a year ago and three cents above analyst estimates.
TD's chief financial officer says the benefits from low energy prices — such as more money in consumers' pockets when they save at the pump and a boost in manufacturing and exports — will make up for potentially higher loan losses in oil-dependent provinces.
"Lower energy prices actually are positive if you look to Central Canada and the northeastern U.S.," Colleen Johnston said in an interview Thursday. "So there are some potential offsets."
CIBC's (TSX:CM) chief executive Victor Dodig said that, although oil-dependent provinces are likely to face further difficulties in the quarters ahead, there are signs that manufacturing is rebounding thanks to the low loonie and growing U.S. demand.
"These macro trends, combined with the benefits we're seeing from our client-focused strategy, are expected to mitigate the negative returns impact from a prolonged downturn in energy prices," Dodig told analysts during a conference call Thursday.
CIBC boosted its quarterly dividend as it reported that its third-quarter net income grew to $978 million, up 6.2 per cent from the same time last year.
CIBC's net profit was equal to $2.42 per share. After adjustments, CIBC raked in $990 million, or $2.45 per share, of earnings — a new record high for the lender and above the estimate of $2.31 from Thomson Reuters.
The bank says it will raise its quarterly dividend by 2.75 per cent, or three cents, to $1.12 per share.
"Although the headwinds from a low interest rate environment and prolonged oil prices persist, we're confident that our earnings power, high quality loan portfolio and strong balance sheet will allow us to maintain this higher level of dividend," Dodig said.
In addition to concerns about the oil price shock in Western Canada — which has led to a sharp but manageable uptick in impaired loans to the energy sector for most of the banks — the lenders are also grappling with interest rates, which have remained at historically low levels for a prolonged period of time.
Two interest rate cuts from the Bank of Canada this year have exacerbated the pressure on the banks' net interest margins, or the difference between the amount of money that the banks collect on loans and the amount they pay out on deposits.
"We believe that (pressure) will continue, that we'll see some continuing declines in our margins," said Johnston, adding that another rate cut from the central bank could be on the horizon.
"It's difficult to say," Johnston said. "If you'd asked me a week ago, I would have said that rates will remain where they are for now ... If you look at it now, I think there is some likelihood that the Bank of Canada would consider a further cut, and obviously we would adapt to that if it does happen."
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Alexandra Posadzki, The Canadian Press