BMO earned just over $ 2.2 billion in the three months to the end of July, 85% more than in the same period a year ago. “As the economic recovery continues to take hold and communities adjust to the latest developments in the pandemic, we are committed to helping our customers make real financial progress and support their ambitions for growth,” said the CEO Darryl White in a statement.
A year ago, the Bank of Montreal had set aside more than $ 1 billion to potentially write off loans that the bank said could go wrong, a measure known as “allowance for credit losses” .
At the start of the pandemic, Canada’s five big banks – RBC, TD, Scotia, BMO and CIBC – set aside more than $ 5 billion in such provisions to potentially write off loans they say could go bankrupt at cause of the pandemic.
But a year later, it’s a whole different story. BMO managed to completely spill that potential red ink and free up $ 70 million in loans it had written off and put it back on the positive side of its ledger.
Profits grew in almost every area of BMO’s business, from the core retail banking unit in Canada and its US division, to wealth management and its trading unit.
Scotiabank profits also rise
It was a similar story at the Bank of Nova Scotia, which reported quarterly profit of just over $ 2.5 billion. At the same time last year, Scotia’s profit was just over half, to $ 1.3 billion.
Much like BMO, Scotiabank has seen a sharp decline in its loan loss provisions, with the bank’s figure dropping from $ 2.1 billion last year to just $ 380 million this year.
Paul Gulberg, analyst at Bloomberg Intelligence, says that overall, the financial performance of both banks has been quite strong. “They’ve both done really well in terms of reserve releases,” he said in an interview with CBC News. “They see a stronger economic environment than expected. They see less write-downs in their loan portfolio. So they’re releasing a lot of reserves that they filled last year – better than they expected, ”he said.
Canada’s other three major lenders will release their quarterly figures in the coming days, with Royal Bank reporting on Wednesday and CIBC and TD following up on Thursday.
Canary in the economic coal mine
Economists and financial analysts pay particular attention to the earnings of major Canadian banks, as they are considered an indicator of the overall economy. If banks are posting strong profits, it means the companies they do business with are also doing well, suggesting the economy is expanding. Conversely, if banks are not doing well, it suggests that their customers are also not doing well enough to borrow and invest more, which is a bad sign for the economy.
Normally, when profits increase, banks take a portion of those profits and return them to shareholders in the form of dividend increases. But they can’t do it at this time because at the onset of the pandemic, Canada’s financial regulator, OSFI (Office of the Superintendent of Financial Institutions) prohibited them from doing so, in case the banks needed to. of this excess liquidity to navigate the uncertain waters ahead. .
“OSFI expects banks to use the additional lending capacity to support Canadian businesses and households,” the regulator said in March 2020 when the pandemic first struck.
Other countries have put similar restrictions on dividend increases, but since then many have relaxed those restrictions. The United States, for example, removed this rule in June. Canada has so far failed to lift this ban, but at least one banking watcher says it’s time to get rid of it.
“At this point in the recovery, we believe there is no compelling political reason to maintain the cap. In fact, over time the cap seems less and less logical, ”wrote Rob Wessel, co-founder of Hamilton ETFs. to customers in a note this week. “We believe an equally strong argument for lifting the cap would be to support the large number of Canadians who depend on bank dividends for their income and to help alleviate some of the financial challenges associated with the pandemic. “