Higher interest rates are expected to hurt lenders’ fiscal third-quarter earnings when they begin to report Thursday. Inflation data on both sides of the border have ratcheted up bets that central banks could raise rates further still, which would further erode spending power and borrowing demand. Analysts expect that higher rates could have banks bracing for elevated funding costs and lagging loan growth.
“Events over the last two weeks now suggest that this window of opportunity may have closed even before it really opened,” Grauman wrote in an Aug. 18 note. The S&P/TSX Composite Commercial Banks index bounced back Wednesday from a seven-day slump, the longest losing streak in more than two years, to gain 1.2 per cent as of 2:13 p.m. in Toronto. Still, the gauge has dropped over 4 per cent this year, compared with a 2.7 per cent gain for the broader Canadian benchmark and the composite insurance index’s 7 per cent advance.
The banks have cost issues — non-interest expenses grew 12 per cent across the sector in the first half of the year, Dechaine calculated in a June 6 note. The Big Six could record restructuring charges to the tune of $3 billion that he expects will be recorded mostly in the fourth quarter. He also pointed to expense growth in the low-teens in the second quarter as a negative surprise he said could emerge again in the third quarter.
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