TORONTO – Both BMO and Scotiabank saw higher lending and profit growth in the last quarter than a year ago, saying trade and consumer demand remained strong despite growing concerns about the economy.
The two banks, the first to report results for the second quarter that lasted until the end of April, say that while their results are stable, they have also strengthened their domestic stress test scenarios as central banks raise interest rates to combat inflation.
“Given the macroeconomic environment, we are conducting stress tests that would have harsher data today than a year ago,” Scotiabank CEO Brian Porter said during a conversation about earnings on Wednesday.
Rising interest rates are raising concerns that central banks may step over and push the economy into recession, but banks say they have seen little sign of such a case so far.
Many companies are still investing to bridge supply chain gaps, increase onshore production and increase productivity, said David Casper, who heads North American commercial banking at BMO.
“There is certainly more uncertainty given some of the continuing problems we all know about, the supply chain, inflation, but the demand for our customers’ products still exceeds supply. So they keep growing, they are trying to cope. “
BMO reported a total increase in loans of nine percent for the quarter compared to the previous year, with slightly better profits in trade, while Scotiabank reported 13 percent profit, increased in part by 16 percent profit on Canadian mortgages.
The activity helped increase net income in the Canadian personal and commercial division of BMO by 21%, while Scotiabank reported a 27% jump in its Canadian division.
Rising mortgage rates have focused on heavy debt borne by Canadian households, but banks say their loan portfolios remain strong as consumers’ financial health generally improved during the pandemic.
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“We are very confident in the health of Canadian consumers at the moment,” said Phil Thomas, Scotiabank’s chief risk officer.
However, the bank noted that the Canadian housing market has already begun to slow as interest rates begin to rise and does not expect the same level of mortgage activity for the rest of the year.
“You are seeing some slowdown in mortgage growth … there are some markets that have obviously increased more in favor of buyers, so to speak, based on easing,” said Dan Rees, head of Canadian banking at Scotiabank.
He said the bank had fallen by about 2.5% in mortgage growth over the previous quarter, but still expected to see growth in the year for the remaining quarters to be high single digits.
Banks are also not immune to inflationary pressures, with Scotiabank’s spending up 3% from a year earlier, including an 8% jump in Canadian spending, and BMO reporting up 2% adjusted costs, including an 11% jump in Canada. invest in both technology and rising wages.
Both banks say they expect to keep spending growth on low single digits, but the BMO has revised its estimate to 2.5% for the year from 1.5%.
Banks also need to take advantage of rising interest rates designed to fight inflation, both reporting slightly higher net interest margins than in the previous quarter.
Rising interest rates have left a large dent in stock market and trading activity estimates, helping to reduce net income in BMO’s capital markets division by 20% year-on-year, while Scotiabank reported that global banking revenues and the market division decreased by six. one hundred compared to a year earlier.
However, the withdrawal was more than offset by gains in other divisions, with BMO reporting adjusted net income, which excludes revenue from the forthcoming West Bank, at $ 2.19 billion, from $ 2.58 billion in the same quarter. -early.
Scotiabank reported a net profit of $ 2.75 billion, compared to $ 2.46 billion in the same quarter last year.
BMO said it would now pay a quarterly dividend of $ 1.39 per share, which is six cents more than $ 1.33 per share, while Scotiabank increased its quarterly dividend by three cents to $ 1.03 per share.
Manny Grauman, an analyst at Scotiabank, said in a note that while the quarter’s results were inherently backward, it was encouraging that we saw no signs of a slowdown in BMO’s revenue.
“The good news from these results is that there are no signs of a recession anywhere in the numbers.”
This Canadian Press report was first published on May 25, 2022.
Companies in this story: (TSX: BNS; TSX: BMO)
Ian Bikis, Canadian Press
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