The “big six” Canadian banks – Royal Bank of Canada, Toronto-Dominion Bank, Bank of Nova Scotia (Scotiabank), Bank of Montreal, Canadian Imperial Bank of Commerce, and National Bank of Canada (OTC: NTIOF) are all set to release their earnings reports this week.
The COVID-19 global pandemic had a heavy impact on the Canadian economy. The tenth-largest economy in the world slid into a recession. However, earlier this year, TD, CIBC, RBC, National Bank, BMO, and Scotiabank all reported better-than-expected profits in the three months ending Jan. 31, as provisions for credit losses declined and net income rose from the same time a year earlier before COVID-19 was declared a pandemic.
Now, in the week ahead, the big six banks are expected to post strong quarterly earnings, whilst resuming raising dividends and share buybacks after an almost two-year hiatus.
Dividend Growth Tsunami
According to Reuters calculations, the big six Canadian banks on average have a dividend yield of 3.3%. Canada’s banks’ dividend yield compares favorably with its global counterparts which according to Refinitiv data stands at 2.5%.
The Canadian bank’s dividend increases would be the first since the financial regulator enacted a moratorium in March 2020. This harsh measure was lifted in early November 2021. The dividends announced this week could range from 10% for Scotiabank up to 34% at National Bank. Gabriel Dechaine, an analyst at National Bank Financial, described the coming jumps in dividends as a “dividend growth tsunami.”
Why will there be a dividend growth tsunami? well, adjusted earnings for the top six lenders are expected to leap around 37% from the same time last year. Earnings have been boosted by a pick-up in business and credit card lending and mortgage growth, as well as continued reserve releases.
Wealth and asset management units are expected to show further growth, as Canadian consumers continued to deploy cash piles built up during the period of the pandemic.
Canadian Banks’ COVID 19 Response
When the coronavirus sparked a global lockdown in March 2020, Canada’s banking sector worked with the federal government, the Bank of Canada, and regulators to implement an immediate series of relief initiatives.
Tailored support plans for individuals and small businesses helped manage financial uncertainty and help negate the economic impact of COVID‑19.
According to the CBA, Canada’s banks helped nearly 800,000 homeowners with mortgage flexibility and assisted 482,500 individuals with deferrals of credit card payment
The Canada Emergency Response Benefit assisted nearly 4 million Canadians. Interest‑free loans were facilitated to nearly 900,000 small businesses through the Canada Emergency Business Account.
Canada’s big six banks waived over $112 million in fees for personal bank accounts from March 2020 to February 2021.
Overall, it is fair to say that the Canadian provided good, flexible solutions to help personal and small business banking customers manage through challenges such as pay disruption due to COVID-19; childcare disruption due to school closures; or those facing illness from COVID-19.
And it paid off. Canadian people, on the whole, kept their loan repayments going so far. Repayments were hobbled together as the Canadian economy recovered from the largest economic contraction since 1945.
Canadian Banks Leading the Way
Canadian banks are a good example of what can be achieved in a time of economic crisis. A strong and open response to the pandemic provided a much-needed prop to the flailing Canadian economy.
Working in lockstep with stakeholders across the board, Canadian banks have benefited from the change in attitudes. Savings accumulated during the COVID-19 pandemic have boosted consumers’ and businesses’ purchasing power even at higher prices.
Canadian banks stood by Canada at a time of crisis and it is literally reaping dividends. Other global banks and investors should take note!
