Canada’s big banks are seeing their profits soar. Here’s how they’re making their money

It was a big week for Canada’s banks as five of the country’s largest lenders reported sizable second-quarter profits.

The profit surges were fuelled, in large part, by reducing the amount of money set aside for loans that could go bad – also known as provisions for credit losses.

What this means is that consumers and businesses haven’t been defaulting on their loans as much as anticipated — they’ve been largely staying on top of their debt amid ongoing government COVID-19 pandemic supports.

And while some of the bank CEOs seem optimistic about the country’s economic future as vaccine campaigns ramp up, they also remain cautious, acknowledging we’re not on the other side of the pandemic just yet.

Here’s a breakdown of how and where the banks made their money in the latest quarter, save for Bank of Nova Scotia, which reports its results on Tuesday.

TD Bank Group saw its profit more than double compared with a year ago as the bank recovered some of the money it set aside for loans that could go bad.

TD reported a $377-million recovery of credit losses compared with a provision for credit losses of $3.2 billion a year ago.

CEO Bharat Masrani said TD’s strong results reflected improving economic conditions, its approach to managing risk and the strength of its diversified businesses.

“While we are encouraged by the progress being made on vaccinations, COVID-19 continues to be a factor in our lives and our focus remains on the safety of our people and on supporting the evolving needs of our customers and clients,” Masrani said.

Revenue at TD totalled $10.2 billion, which was down from $10.5 billion in the same quarter last year.
The biggest profit surge was seen in its Canadian retail business, which includes residential mortgages, credit cards and commercial banking. That segment of the business earned 86 per cent more than in the same quarter last year.

Meanwhile, RBC, Canada’s biggest bank, on Thursday reported a profit of about $4 billion for the quarter, up from $1.48 billion a year earlier.

“The strong momentum we’ve achieved in the first half of 2021 reflects our focused strategy to deliver exceptional experiences and create more value for clients,” RBC CEO Dave McKay said in a statement.

“While there is reason for optimism as recovery continues to take hold, we know the pandemic’s path forward still poses challenges.”

RBC also reversed $96 million of its provisions for credit losses in Q2 compared with the $2.83 billion it set aside a year ago at the start of the pandemic.

Revenue totalled $11.62 billion, up from $10.33 billion in the same quarter last year.

RBC saw the biggest earnings gain in its wealth management business — which includes transaction accounts and investment products, like mutual funds — where profits surged 63 per cent compared to the same quarter in 2020.

Canadian Imperial Bank of Commerce more than tripled its second-quarter profit, earning $1.65 billion, up from a profit of $392 million a year ago. The increase came as the money the bank set aside for bad loans fell to $32 million compared with $1.41 billion in the same quarter last year at the onset of the pandemic.

CIBC’s chief executive said that while the pandemic isn’t yet over, he’s expecting the country to see an economic boost as more people become vaccinated.

“Our neighbours to the south … are enjoying an economic boost that we have yet to fully experience here in Canada,” Victor Dodig told analysts on a Thursday call.

“While we’re not on the other side of this pandemic yet, there’s every reason to be optimistic.”

Total revenue grew to $4.93 billion from $4.58 billion in the same quarter last year. The biggest income gains were in the U.S. commercial and wealth and capital markets businesses.

Bank of Montreal kicked off bank earnings Wednesday by posting a profit of $1.3 billion – more than double what it reported a year earlier.

The increase came as BMO’s total provision for credit losses fell to $60 million compared with $1.1 billion in the same quarter last year.

Revenue for Q2 was nearly $6.1 billion, up from almost $5.3 billion a year ago.

“This quarter, we continued to deliver very strong results with all of our businesses performing well,” BMO chief executive Darryl White said in a statement Wednesday.

“We are executing against a consistent, purpose-driven strategy – which for us means winning together with our customers, our communities, our employees and our shareholders.”

Big profits gains were seen in the Canadian personal and commercial banking segment, which includes residential mortgages, commercial loans and home equity lines of credit (HELOCs).

In its capital markets division, BMO earned an adjusted net income of $570 million for the quarter, compared with a loss of $68 million a year earlier.

Montreal-based National Bank of Canada on Friday reported a profit of $801 million – more than double compared to a year ago.

“Our solid results once again reflect the fact that we have made the right strategic choices and have built a strong, diversified and agile franchise,” National Bank CEO Louis Vachon said in a statement.

Provisions for credit losses in the quarter fell to $5 million compared with $504 million in the same quarter last year.

Revenue totalled nearly $2.2 billion, up from $2.0 billion in the same quarter a year ago.

The bank’s personal and commercial banking division saw the biggest profit gains, earning $321 million compared with $56 million a year ago when it was hurt by higher provisions for credit losses due to the economic downturn.

—With files from The Canadian Press