Two top lenders warned of economic pain ahead with higher loan loss provisions and a fall in quarterly profits.
Bank of Nova Scotia (TSX:BNS) tumbled nearly 5 per cent on Tuesday, after reporting less-than-expected Q1 profit and revenue due to booking higher provisions for credit losses and a federal tax expense.
The company pointed to the impact of foreign currency translation, as well as a less favourable macroeconomic outlook, higher provisions in retail banking, and residential mortgage and auto loan portfolios in Canada. An expense set aside as an allowance for uncollected loans and loan payments, a loan loss provision is used to cover different kinds of loan losses, from non-performing loans to bankruptcy.
The company’s reported net income was $1,772 million, compared to $2,740 million in Q1 2022.
BMO Financial Group (TSX:BMO) fell 1.8 per cent following its fiscal Q1 2023 profit report of $247 million, down 92 per cent from $2.93 billion the same quarter a year earlier.
The bank said a one-time charge related to its acquisition of U.S. financial institution Bank of the West was to blame for the steep profit decline.
Bank of Montreal’s fiscal Q1 profit equaled $0.30 per share for the quarter ended January 31, 2023, compared with a profit of $4.43 per share a year earlier. This was below analyst predicts of a fiscal Q1 profit of $3.16 per share. Revenue in the latest quarter totalled $6.47 billion, down 16 per cent from last year’s $7.72 billion.
This performance kicked off a domino effect causing a 0.7 per cent slump in the heavyweight financials sector of Canada’s benchmark stock index. The sector is on track for a 1 per cent monthly decline.
Economists have forecast a challenging macroeconomic environment on the horizon for Canada’s big banks, with these earnings guiding more to believe that tough times are ahead.