Bank earnings preview: Focus remains on bad loan provisions in Q3

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Canadian banks will continue putting aside massive amounts of cash to cover unpaid or 'bad' loans in their second quarters, but the totals won't be nearly as high as they were in the previous quarter, analysts say.

A Royal Bank of Canada sign is shown in the financial district in Toronto on Tuesday, August 22, 2017. THE CANADIAN PRESS/Nathan DenetteTORONTO -- Canadian banks will continue putting aside massive amounts of cash to cover unpaid or "bad" loans in their second quarters, but the totals won't be nearly as high as they were in the previous quarter, analysts say.

They have tried to rise to the occasion by offering mortgage and loan deferrals, but both measures have weighed down their earnings, eaten into their margins and pushed them to collectively allocate about $10.9 billion in provisions for credit losses."The banks are facing a lot of challenges because of the low rate environment, because of the liquidity in the system," he said.

"While we are definitely not out of the woods, we believe Q3/20 bank results could yield positive surprises including lower than expected provisions for credit losses, strong capital markets results," he said in a note to investors. RBC said last quarter that its credit-loss provisions amounted to $2.83 billion, up 564 per cent from $426 million in the same quarter last year.

 

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