Analysts expect average core earnings per share for the top six lenders in the three months through April to more than double from a year ago, when they set aside nearly $11 billion to cover potential bad loans. That would be 9.5 per cent lower from the previous quarter, largely due to fewer days in the period.This advertisement has not loaded yet, but your article continues below.
Given the upward revisions to earnings estimates, many analysts have raised their share price targets, even though the Canadian banks index has already climbed nearly 60 per cent over the past year, nearly double the gains seen in the Toronto stock benchmark. Optimism around earnings have contributed to the gains, and that could reverse somewhat if they disappoint, said Bryden Teich, portfolio manager at Avenue Investment Management.“The feeling is that valuations on 2022 aren’t demanding, and they don’t price in what’s going to happen with excess capital,” said Barry Schwartz, chief investment officer at Baskin Wealth Management.
Which banks release more reserves could provide insight into the quality of their loan books, Teich said. “The banks really should be releasing reserves now… because a lot of loans that have been in delinquency, they’re going to write them off or the credit quality has gotten better,” he said. “The banks that release a lot of provisions tell you their lending practices have been much better.”Article content