Canada's biggest banks continued to top expectations in the first fiscal quarter of 2018, aided by robust economic growth and higher interest rates.
Analysts expect the banks to sustain steady growth throughout the year. Those with a strong presence in the U.S. and other countries will benefit from the growing U.S. and global economies, DBRS said. Still, Canada's elevated home prices and leveraged consumers are causes for concern. "High household debt could amplify the impact of employment or interest rate shocks on the real economy," the rating agency said.
John Aiken of Barclays expects banks' capital markets revenues to ebb from the seasonally strong fiscal first quarter, but "steady credit quality and cost discipline" will continue to aid Canadian banks' profits, he said.

Canadian Imperial Bank of Commerce profits slipped to C$1.31 billion from C$1.39 billion a year ago as the Toronto-based lender posted a charge of C$88 million due to the recent tax reform in the U.S. Excluding one-time items, adjusted earnings improved year over year to C$1.41 billion, or C$3.18 per share, exceeding mean EPS estimate of C$2.83.
Royal Bank of Canada reclaimed its spot as Canada's largest bank, growing its assets to C$1.276 trillion for the quarter ended Jan. 31, 2018, from the previous quarter's C$1.213 trillion. Normalized EPS topped consensus estimates by 6 Canadian cents at C$2.05. Royal Bank grew its wealth management net income by 39% to C$597 million, reflecting higher average fee-based assets, an increase in net interest income and a lower effective tax rate. Other upticks were seen in its investor and treasury services segment as well as capital markets.
In comparison, Toronto-Dominion Bank's assets decreased to C$1.261 trillion in the recent quarter, down from C$1.279 trillion in the quarter ended Oct. 31, 2017, amid reductions of around C$11 billion in other assets and around C$10 billion in securities purchased under reverse repurchase agreements.
Canada's second-largest lender saw fiscal first-quarter profit slide year over year to C$2.28 billion, or C$1.24 per share, from C$2.46 billion, or C$1.32 per share, as it recorded a C$453 million net charge to earnings due to U.S. tax reform. Excluding one-time items, EPS rose to C$1.56 to exceed mean estimates of C$1.46. TD Bank's Canadian retail business reported a 12% increase in net income to C$1.76 billion, while net income for the U.S. retail business went up 19% to C$952 million.
"[W]e are seizing the opportunities created by a favorable operating environment to accelerate investment," Bharat Masrani, TD Bank president and CEO, said in an earnings call. The bank will be investing more in its front line staff and enhancing digital offerings in the coming quarters, he added.

Among the "Big Six," Canadian Imperial Bank recorded the highest growth in net loans and total deposits at 13.7% and 8.9%, respectively. This helped boost the net income of its Canadian commercial banking and wealth management segment to C$314 million. Meanwhile, provision for credit losses was down C$59 million from a year ago to C$153 million, mainly due to a reduction in allowance for non-impaired loans.
Following the adoption of the new accounting standard — which classifies all mortgages as impaired at 90 days past due — Canadian Imperial Bank expects more volatility in loan loss provisions, said Chief Risk Officer Laura Dottori-Attanasio. The implementation of the new mortgage underwriting rules is reflected in the slowdown of the bank's residential mortgage growth, which went down to 0.3% from 2% in the previous quarter, according to DBRS' Robert Colangelo, which noted that the bank's mortgage growth had previously outpaced its peers.
Canadian Imperial Bank originated C$9 billion in new mortgages in the fiscal first quarter, down 25% from the previous year. Christina Kramer, Canadian Imperial Bank's group head of personal and small business banking in Canada, said mortgage growth has been slowing since the middle of 2017. "We would be offsetting that mortgage growth change with momentum in ... other parts of our business," she added.
While the new mortgage rules appeared to have started affecting home buying activity, Canadian banks are still expecting mid- to high-single-digit residential lending growth for 2018, Aiken said. "Margin expansion will need to resume as an offset to lower volumes," the Barclays analyst added.

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