Big 6 banks see profits rise to $10.4B, helped by oil's rebound

Earlier this year, some analysts were expecting that the country's big banks would see their profits squeezed by delinquent oilpatch loans. And while the banks have incurred some energy losses, they weren't enough to prevent all six from posting higher profits in the third quarter.

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Total profits of Canada's big six banks came to $10.37 billion in the quarter, which ended in July. That's up 12.6 per cent over last year's Q3 profit figure of $9.21 billion. 

Figures from Bloomberg show that the big banks collectively set aside $1.99 billion for bad loans in the May-to-July quarter — lower than what analysts had been expecting. 

Scotiabank, for instance, lowered its third-quarter provision for credit losses by $181 million to $571 million, suggesting it thinks the worst of the energy downturn is in the rearview mirror.

"We have been consistent in stating that [energy sector] losses will be manageable and we are confident that losses in this sector have peaked," Scotiabank CEO Brian Porter said during a conference call with analysts. 

Oil's rebound from $26 US a barrel in mid-February to the current level of about $45 US has helped energy companies pay their bills and boosted most of the banks' confidence that the worst is over. 

Only one of the big banks — Bank of Montreal — raised its loan loss provisions.

Housing market focus

Bank loans to the energy sector — which Bloomberg says account for two per cent of the banks' total loan portfolio — are dwarfed by the amount they loan in mortgages. 

So it's not surprising that the main focus of analysts grilling bank executives during the earnings calls in the last week was about the health of their mortgage portfolios in case of a major housing downturn.

"It seems like analysts have pivoted now more to being concerned about exposure to real estate," Edward Jones financial services analyst Jim Shanahan told the Canadian Press.

"That's likely to be the focus for the balance of the year."

The worry is what would happen in the event of a major housing market crash — especially in the pricey markets of Vancouver and Toronto.

'Credit profiles are strong'

Scotiabank, Royal Bank and CIBC brass all took pains to assure the analysts that their residential mortgage loan accounts are of good quality.

"Overall, we remain comfortable with our exposure to the Canadian housing market," RBC chief risk officer Mark Hughes told analysts last week. "Our clients' credit profiles are strong and have remained stable."

A large percentage of the residential mortgages held by the banks is also insured. That protects the banks if homeowners can't make their mortgage payments. Mortgage credit insurance is required whenever a homebuyer puts less than 20 per cent down.

The largest insurer of residential mortgages, the Canada Mortgage and Housing Corporation, reported this week that delinquencies were rising in Alberta and Saskatchewan, but said mortgage arrears remained low and its homeowner clients have an average credit score of 750, considered very good.