Unpacking another strong quarter from the banks

“Asset quality has been stable to improving. Credit costs were as per our expectations. The returns on equity are actually running at their medium-term guidance. So things have been moving in the right direction,” Sachdeva adds.

Could tariffs derail bank growth?

While the banks have been strong over the past several quarters, the sector does carry some wider exposure to the underlying Canadian economy. As that economy has faced uncertainty brought on by US tariff threats, the banks have dug protective moats. They’ve added to loan loss provisions quite substantially in order to safeguard against defaults. At the same time, the banks have raised lending standards and been more restrictive in their lending to protect themselves from possible economic weaknesses brought on by tariffs. The question for investors and advisors, as new tariffs hit the economy, is whether those provisions are enough?

“The banks were proactive to qualify that the sectors facing a new 50% tariff only represent about one per cent or less of the loans that the banks carry, so the exposure is quite manageable,” Sachdeva says. “But, things can escalate.”

Sachdeva notes that the banks have actually lowered some of the loan loss provisions they had banked in earlier quarters, reflecting a degree of growing confidence. TD, for example, has even stated that current loan losses are running at the lower end of their expected range. Sachdeva’s view is that the banks are still well reserved for some economic headwinds.

Baldwin offers a slightly more cautious note, emphasizing the fact that the new tariffs were only manifesting last week, when the banks had all effectively locked in their filings and earnings reports. He expects greater clarity on how these tariffs are impacting the banks in the next quarterly earnings. Still, he highlighted the strong positions of the banks and their likely positions as secondary beneficiaries from fiscal stimulus as reasons for some confidence.