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Canadian banks set to reveal quarterly earnings amid housing & debt concerns

Ratings agency Moody's downgraded the credit ratings for Canada's big banks earlier this month, citing concerns that over-stretched borrowers and high house prices have left lenders vulnerable to potential losses.

Ratings agency Moody’s downgraded the credit ratings for Canada’s big banks earlier this month, citing concerns that over-stretched borrowers and high house prices have left lenders vulnerable to potential losses. (Dillon Hodgin/CBC)

The Canadian banks are expected to benefit from rising U.S. interest rates and fewer bad loans in the oilpatch as they start reporting their latest quarterly results this week, but analysts say worries about the housing market and consumer debt remain key concerns.

“The reality is that given all of the fears about the Canadian mortgage market, I think that even if the results are good, people will dismiss them as being backward-looking,” said analyst Meny Grauman of Cormark Securities.

The Bank of Montreal will kick off the earnings parade on Wednesday, followed by Royal Bank, TD Bank and CIBC  on Thursday. Scotiabank will report May 30.

Edward Jones analyst Jim Shanahan said fee income from trading activities and other types of charges was a key driver of earnings growth last quarter.

That likely moderated during the second quarter, but a strengthening in net-interest margins — stemming from U.S. interest rate hikes in December and March — will likely pick up some of the slack, he said.

BMO and TD are most likely to benefit from the rate increases, Shanahan said.

The banks could also see some improvement in their loan loss provisions as stability has returned to the oilpatch.

“From a credit perspective we should see some continued improvement within the oil and gas portfolios,” Shanahan said.

However, analysts said concerns about high home prices, debt-laden consumers and a liquidity crisis at mortgage lender Home Capital Group  could all weigh on the bank stocks.

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