Canada’s major banks should try to curb their spending, while they unveil this week its financial results for the fourth quarter.
The Bank of Montreal (T.BMO) and Scotiabank (T.BNS) launch the ball on Tuesday, followed by Royal Bank (TSX: RY) and National Bank (T.NA) the next day. CIBC (T.CM) and TD (T.TD) follow suit Thursday.
Jim Shanahan, an analyst for Edward Jones investment firm, believes that banks need a catalyst to increase profits. Increasingly, the focus will be on spending, he says.
Analysts will look for signs of cracks from the fall in oil prices on loans made by banks.
The first clues suggesting difficulties at this level have emerged in the last quarter, while most creditors have reported a higher proportion of problem loans – loans that will not possibly refunded in full – made to operating businesses in the oil and gas sector.
But most credit problems seemed to be properly managed by the banks.
Analysts believe that it is rather the consumers who will be most directly affected, for example when laid-off workers will be unable to repay their credit cards, loans or their mortgages.
However, these adverse effects are unlikely to be reflected in the results of banks that will be unveiled this week, since it is generally a longer period between job losses and defaults.
“We do not believe it will be in this quarter,” wrote analyst Robert Sedran of CIBC in a note sent to clients, rather than predicting losses in loans will be felt in 2016 and could increase by 20% on average.