Big banks set to reveal quarterly earnings, against uncertain economic backdrop

Canada's banks are gearing up to release their latest quarterly results amid a volatile backdrop.

Analysts are expecting tempered results as the banks navigate soaring inflation, rising interest rates, housing risks and a stock market sell-off.

When the banks begin reporting this week, analysts expect to see lending volumes continuing to show strength, driven by mortgage growth and the hot housing market, which is now starting too cool.

Barclays analyst John Aiken also expects a "bonanza of dividend hikes" this week.

The Bank of Montreal and Scotiabank will be the first of the big Canadian banks to report their results on Wednesday. CIBC, RBC and TD Bank will release their results on Thursday and National Bank will round things out on Friday.

Cormark Securities analyst Lemar Persaud is taking a cautious view on the Canadian banking sector going into second-quarter earnings and says this week's results could lead to "negative earnings revisions" around loan growth and fee income growth in wealth management and investment banking, as well as credit losses.

Persaud is also forecasting a 0.4 per cent year-over-year decline in earnings per share when the banks report this week.

As the Bank of Canada continues to increase interest rates — another half-percentage-point hike is possible next week according to some economists — Barclays' Aiken said in a note to clients that this could be a "double edged sword" for the banking sector. While it may lead to improved margins it will also have a cooling effect on the housing market and mortgage lending volumes, he explained.

But analysts generally don't see a mortgage volume slowdown hitting bank revenues too hard.

"Though a decline in mortgage volumes should only have a minor impact on bank revenue growth, the narrative around the issue is hardly going to be a positive sentiment builder," National Bank analyst Gabriel Dechaine said in a client note.