TORONTO – BMO and Scotiabank reported higher loan and earnings growth in the last quarter than a year ago and said business and consumer demand remain strong despite growing concerns about the economy.
The two banks, the first to report second-quarter results that lasted until the end of April, say that while their results were robust, they have also increased their internal stress testing scenarios as they that central banks raise interest rates to fight inflation.
“Given the macroeconomic environment, we’re testing stress that would have harder inputs today than possibly a year ago,” Scotiabank CEO Brian Porter said in a results call Wednesday.
The rising interest rate environment is raising concerns that central banks may outperform and push the economy into recession, but banks say they have seen few signs of such a case so far.
Many companies are still investing in bridging supply chain gaps, increasing production on the ground and increasing productivity, said David Casper, who heads U.S. commercial banking at BMO.
“There is certainly more uncertainty given some of the ongoing problems we all know, the supply chain, inflation, but the demand for our customers’ products still exceeds supply. So they keep growing, trying to keep up. a day. “
BMO posted nine percent overall loan growth for the quarter from a year ago, with slightly better earnings in the commercial sector, while Scotiabank posted a 13 percent gain, driven in part by a 16 percent gain. per cent of Canadian mortgages.
The activity helped increase BMO’s Canadian personal and business division’s net income by 21%, while Scotiabank saw a 27% increase in its Canadian division.
Rising mortgage rates have focused on the heavy debt burden on Canadian households, but banks say their loan portfolio remains strong as consumers’ overall financial health has improved. the pandemic.
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“Right now we are very confident in the health of the Canadian consumer,” said Phil Thomas, Scotiabank’s director of risk.
However, the bank noted that the Canadian real estate market has already begun to slow as rates begin to rise, and does not expect the same level of mortgage activity for the rest of the year.
“You’ve seen a bit of a slowdown in mortgage growth … there are some markets that have obviously grown more in favor of buyers, let’s say, based on a softening,” said Dan Rees, chief Scotiabank Canadian Bank.
He said the bank has fallen about 2.5 percent in mortgage growth from the previous quarter, but still expects to see year-on-year growth for the remaining quarters at a high digit.
Banks are also not immune to inflationary pressures, with Scotiabank spending up 3% from the previous year, including an 8% increase in spending in the Canadian division, and BMO reporting adjusted spending up 2%. including an 11% jump. in Canada, as they both invest in technology and increase wages.
Both banks say they expect to keep spending growth at a low, but BMO revised its estimate to 2.5 percent for the year, from 1.5 percent.
And banks will benefit from rising inflation-fighting rates, with slightly higher net interest rates compared to the previous quarter.
The increase in rates has severely affected stock market valuations and business activity, which helped reduce BMO’s capital markets net income by 20% over the previous year, while Scotiabank reported that revenues from its global banking and markets division fell six. percent a year earlier.
However, the decline in markets was more than offset by gains in other divisions, and BMO reported adjusted net income, which excludes revenue related to its $ 2.90 billion Bank of the West outstanding. more than 2.58 billion in the same quarter last year.
Scotiabank posted net income of $ 2.75 billion, up from $ 2.46 billion in the same quarter last year.
BMO said it will now pay a quarterly dividend of $ 1.39 per share, six cents more than $ 1.33 per share, while Scotiabank increased its quarterly dividend by three cents to $ 1.03 per share.
Menia Grauman, a Scotiabank analyst, said in a note that while quarterly results are by nature backward, it was encouraging to see no signs of a slowdown in BMO earnings.
“The good news from these results is that there are no signs of recession in any of the numbers.”
This report from The Canadian Press was first published on May 25, 2022.
Companies in this story: (TSX: NBS; TSX: BMO)
Ian Bickis, The Canadian Press