Soaring Canadian Insolvencies Cripple Local Banks
Banks in Canada are starting to feel the pain of deteriorating credit quality, just weeks after we reported that insolvency filings had skyrocketed in almost all Canadian provinces.
Toronto-Dominion Bank and Canadian Imperial Bank of Canada both just posted ugly first quarter results that included higher provisions for loan losses as a key contributor to missing analyst expectations. TD Bank saw its provision for loan losses move to C$850 million, which was up 23% from the year prior. It also marked the highest level for such provisions in at least two years, mainly split between the bank’s U.S. and Canadian retail divisions (36% each), followed by the bank’s corporate division.
Toronto-Dominion’s Chief Financial Officer Riaz Ahmed told Bloomberg that bankruptcies were part of the issue in Canada:
“The fourth quarter and the first quarter of the year always tend to have elevated provisions because of the holiday spending season, so we tend to see that seasonality in cards and auto. In Canada, bankruptcies are up a little bitand we do see a little bit of rise in delinquency in our retail cards in the U.S. None of them would rise to the level of being of particular concern for us.”
CIBC also saw its provisions rise – more than doubling across the bank to C$338 million, which also marked the highest level in at least two years. Most came as a result of Canadian personal and small business banking, with the latter experiencing a a 41% jump in provisions to C$208 million.
CIBC Chief Risk Officer Laura Dottori-Attanasio was quick to make excuses on the bank’s call Thursday:
“A lot of the impairments that took place this quarter felt like unique events which I’d like to think won’t transpire again. We’re not seeing any systemic or any trends of concern in our book. We continue to have strong credit quality.”
Sure you do, Laura.
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