Canadian bank earnings set to reveal impact of tariffs, slower growth

Canada’s largest banks are kicking off earnings season next week against a backdrop of geopolitical tensions and a slowing economy that could cloud the outlook.

Analysts will be watching closely for insight into how economic uncertainty, rising credit costs and tariff risks are weighing on the financial sector.

UBS analysts say this earnings season will be less about last quarter’s numbers and more about what management teams are forecasting for the months ahead. In particular, credit quality trends and signals on future loan growth will be critical to assessing the health of the sector.

“The Big Six bank stocks have shown resilience in the face of tariff rhetoric and growth uncertainty,” UBS analysts wrote in a note. “But macro and political uncertainties remain a bit of an overhang.”

Price-to-earnings multiples for Canada’s largest banks currently sit at 11.4 times forward earnings—above the 10-year average of 10.7, yet below January’s high of 12.1. Still, the group has underperformed the broader TSX by about 325 basis points so far this year.

UBS sees a more “tempered” outlook taking shape for the rest of fiscal 2025, as economic uncertainty begins to dampen both commercial and consumer loan growth.

“We expect larger performing allowance builds this quarter in light of tariff implications and worsening macro outlooks,” the analysts wrote.

UBS projects a 2% year-over-year decline in adjusted earnings per share, but a 15% increase in pre-tax, pre-provision profit (PTPP), buoyed by solid trading revenues and stable net interest margins. However, PTPP is expected to slip about 3% compared to the prior quarter. Net interest income is forecast to rise 13% from a year ago, with loan growth of around 6% and a modest increase in margins. Non-interest income will be mixed, with robust trading offset by weakness in investment banking and wealth management fees.

For investors, the earnings season may highlight divergent paths among the banks. UBS is slightly above consensus on Canadian Imperial Bank of Commerce, Royal Bank of Canada, and Toronto-Dominion Bank. It is roughly in line on National Bank and slightly below on Bank of Nova Scotia and Bank of Montreal.

While rising credit costs may keep valuations in check near-term, strong capital positions and solid pre-provision earnings suggest the banks remain fundamentally sound. UBS estimates a total return potential of about 10% across the group—but warns that meaningful upside hinges on resilient credit performance and renewed momentum in revenues and efficiency.

“We recognize the relative sturdiness of pre-provision earnings and strength of balance sheets,” the analysts wrote. “But more significant upside relies on credit quality resilience first and foremost.”