“I don't think you're going to get a confirmation of recession, because credit conditions are still pretty benign and the employment picture is still fairly strong,” Nigel D'Souza with Veritas Investment Research told BNN Bloomberg Monday.His comments came ahead of Scotiabank’s expected Tuesday results for the three months ending Oct. 31, followed by the other major banks reporting throughout the week.
The assumptions from last quarter’s reports were “a bit optimistic” compared with current economic forecasts, D’Souza said, meaning the economic outlook of banks will likely deteriorate, though he said the impact will vary across different institutions. “We think there's going to be a deterioration in the macroeconomic outlook for Canada's big six banks that's going to put upward pressure on credit losses for performing loans,” he said.
Some banks like CIBC and Toronto-Dominion are still carrying reserves from the pandemic when expected credit losses didn’t materialize, D’Souza said, which will help them “buffer" credit losses, while others like Scotiabank have fewer reserve funds available.
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