National Bank As earnings season for Canadian banks approaches, National Bank Financial analyst Gabriel Dechaine warns fourth quarters “tend to be a mixed bag, often including an uptick in year-end expenses.”
“Looking beyond the quarter, 2025 guidance items are of tremendous interest, especially as it relates to credit expectations, where we expect banks to modestly increase their PCL [provisions for credit losses] ratio guidance ranges,” he said. “Beyond 2025, we are introducing our 2026 estimated EPS that imply 10-per-cent average EPS growth (up 5 per cent for PTPP) across the sector.”
In a research report released Wednesday, Mr. Dechaine said he’s focused on three key themes during the next few weeks:
1. Credit: “It’s guidance time,” he said. “Even excluding BMO, banks have reported higher than forecast PCLs more often than not this year. As a result, 2025E sector PCL forecasts (excl. BMO) have increased by 6 per cent over the course of the year, resulting in a 2025E sector PCL ratio of 41 basis points (vs. 39ps so far in 2024). We believe that banks will increase PCL ratio guidance by 5bps at each end of the range, with higher PCLs expected during H1/25, reducing during H2/25 as the transmission effect of rate cuts takes hold.”
2. Net interest margins: “Expect ‘stable’ messaging,” he said. “Sector margins (excl. trading NII) are up 4bps so far this year. With rate cuts emerging, one might expect a pullback. However, with securities re-pricing, flat/low mortgage growth and stabilization of the deposit mix’s shift, we believe banks can end the year flattish overall. We expect 2025 guidance could be similar on a full-year basis, with the first half compression due to rate cuts offset with the second half expansion due to lower funding costs and asset growth.”
3. Expense management: “A year-end uptick?,” he said. “Big-6 banks have delivered positive operating leverage averaging 1 per cent so far this year, reversing the poor performance we saw during fiscal 2023. At year-end, there is a seasonal expectation of higher expense growth.”
Mr. Dechaine's target changes are:
* EQB Inc. (“sector perform”) to $111 from $102. Average: $108.22.