Canada’s major banks are preparing for rising loan loss provisions in Q2 due to trade uncertainties and higher credit risk. Four of the six big banks are expected to set aside over C$1 billion for potential loan defaults. Earnings for Bank of Montreal and TD Bank may decline, while the other four banks are forecasted to see average profit growth of 7.9%. Slower loan growth and muted investment banking activity are notable trends amid ongoing economic challenges and U.S. tariff policies. Capital markets and trading volumes remain key revenue drivers during this period.
Canada’s major banks are preparing for increased loan loss provisions in the second quarter of 2025 amid growing trade uncertainties and a challenging economic environment. Four of the country’s six largest banks have collectively set aside over C$1 billion to protect against potential loan defaults, reflecting concerns about the impact of ongoing global trade tensions and higher credit risks.
Bank of Montreal (BMO) and TD Bank are expected to report declines in their net income for the quarter. Analysts project that BMO’s loan loss provisions will rise by approximately 49%, leading to an anticipated 7.6% drop in earnings. The bank’s significant exposure to commercial lending means it may face additional pressure as businesses reduce spending. TD Bank, meanwhile, is also expected to see an increase in credit loss provisions by around 22%, partly due to ongoing remediation efforts related to anti-money laundering compliance.
In contrast, the other four major Canadian banks — Royal Bank of Canada (RBC), Scotiabank, CIBC, and National Bank of Canada — are forecasted to experience an average earnings growth of 7.9%, with Royal Bank of Canada (RBC) expected to post the largest increase, benefiting from its broad scale and the recent acquisition of HSBC Canada. Despite these earnings improvements, slower loan growth and reduced investment banking activity are common challenges facing all the banks this quarter.
Trade tensions, especially related to tariff policies by the United States, have created an unpredictable economic climate. This uncertainty has made forecasting difficult and has contributed to cautious lending and borrowing practices among consumers and businesses alike. As a result, the banks are strengthening their loan loss reserves to mitigate potential future credit losses.
Investment banking activity is expected to remain subdued as companies delay major transactions in response to market volatility and economic uncertainty. However, capital markets businesses continue to be a vital source of fee-based revenue, helping banks to maintain profit margins even as traditional banking segments face headwinds.
Trading volumes have been elevated due to market fluctuations, supporting revenue streams for both Canadian and U.S. banks. This trend is expected to continue through the second quarter, partially offsetting the challenges posed by weaker loan growth and higher loan loss provisions.
Overall, Canada’s banking sector is navigating a complex environment shaped by global trade issues and economic uncertainty. While provisions for credit losses are rising, banks are relying on diversified revenue streams, including capital markets, to support earnings growth during this period.