Skip to Content News Archives Economy Energy Oil & Gas Renewables Electric Vehicles Mining Commodities Agriculture Real Estate Mortgages Mortgage Rates Finance Banking Insurance Fintech Cryptocurrency Work Wealth Smart Money Wealth Management Investor Personal Finance Family Finance Retirement Taxes High Net Worth FP Comment Executive Women Puzzmo Newsletters Financial Times Business Essentials More Innovation Information Technology FP500 Podcasts Small Business Lives Told Tails Told Shopping Financial Post Store Obituaries Place a Notice Advertising Advertising With Us Advertising Solutions Postmedia Ad Manager Sponsorship Requests Classifieds Place a Classifieds ad Working Profile Settings My Subscriptions Saved Articles My Offers Newsletters Customer Service FAQ News Economy Energy Mining Real Estate Finance Work Wealth Investor FP Comment Executive Women Puzzmo Newsletters Financial Times Business Essentials HomeFinanceBankingCanada's worsening credit stress to test Big Six bank earningsIf investors turn their attention toward credit risks, bank valuations could be vulnerableLast updated 22 minutes ago You can save this article by registering for free here. Or sign-in if you have an account.Despite the challenges, analysts still expect the Big Six banks to post strong results, primarily due to capital markets and wealth management results. Photo by Jamaalism/Getty ImagesCanada’s biggest banks had hoped to set aside less money to tackle potentially bad loans in the second half of 2026, but analysts say that is increasingly unlikely given the weakening economic outlook.Subscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman, and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.Subscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.Create an account or sign in to continue with your reading experience.Access articles from across Canada with one account.Share your thoughts and join the conversation in the comments.Enjoy additional articles per month.Get email updates from your favourite authors.Create an account or sign in to continue with your reading experience.Access articles from across Canada with one accountShare your thoughts and join the conversation in the commentsEnjoy additional articles per monthGet email updates from your favourite authorsSign In or Create an AccountorAs a result, most analysts covering the Big Six expect the banks to push back their guidance on provisions for credit losses (PCLs) when they report second-quarter earnings next week.“PCL improvements now feel like a (fiscal year 2027) story,” Matthew Lee, an analyst at Canaccord Genuity Corp., said in a note on Wednesday. “Given a more challenging macroeconomic environment, we now expect (fiscal year 2026) to be another year of elevated credit levels, with limited evidence of improving consumer health.”Breaking business news, incisive views, must-reads and market signals. Weekdays by 9 a.m.By signing up you consent to receive the above newsletter from Postmedia Network Inc.A welcome email is on its way. If you don't see it, please check your junk folder.The next issue of Posthaste will soon be in your inbox.We encountered an issue signing you up. Please try againBut Jefferies Inc. analyst John Aiken said that doesn’t mean there will be any material degradation in PCLs and he expects them to be similar to the first quarter.“We believe that the market will be listening closely to management’s commentary on the calls,” he said in a note on Wednesday. “Any shift towards a more conservative commentary, after previously arguing for a better second half, will likely be viewed negatively.”The Big Six dominate the majority of Canada’s financial market, so their results provide key insights on the broader economy. This is the first time the banks will be reporting their results after the start of the war on Iran, which has led to an increase in energy prices and further dampened the economic outlook alongside the banks’ credit outlook.Paul Holden, a CIBC Capital Markets analyst, had been expecting PCLs to peak in the second quarter and gradually improve thereafter. But his view has changed due to higher inflation, rising unemployment, increasing mortgage delinquency rates, higher borrowing costs and a lack of progress on trade negotiations with the United States.“We are taking a somewhat less optimistic view on credit,” he said in a note on May 13. “We expect higher energy prices, knock-on inflationary effects and higher borrowing costs will put incremental pressure on consumer credit.”The number of Canadians filing for insolvency has also been on the rise. About 37,000 people filed for insolvency in the first three months of this year, according to the Office of the Superintendent of Bankruptcy, which is the highest level since 2009, when North America was reeling from a recession.That increase is well-known, Mario Mendonca, an analyst at TD Securities Inc., said in a note on May 12, but the banks’ current high valuations are supported by strong fundamentals.If investors turn their attention toward credit risks, however, he said bank valuations could be vulnerable.“While we acknowledge that the number of Canadians filing for insolvencies is rising, credit pressures are a well-known story,” he said. “What matters more is whether momentum in strong fundamental performance at the banks will be enough to keep investors’ attention on growth rather than risk.”Despite the challenges, analysts expect the banks to continue their good run and post strong results, primarily due to capital markets and wealth management results.“Our expectations are that the second quarter should reflect a similar profile to the first quarter: slowing (but still positive) loan growth with elevated but not critical credit losses,” Aiken said.Lee said he expects the bank’s earnings per share to increase by 18.7 per cent compared to a year ago, but decline by seven per cent from the first quarter. 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