The Big Six’s profits were supported by recoveries on credit losses amid improving economic conditions

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All of Canada’s top lenders beat earnings for the quarter

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Canada’s largest banks are starting to reclaim some of the credit default reserves they built in the early days of the COVID-19 pandemic, a shift fueled by the improving economic outlook and borrower resilience.

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The Canadian Imperial Bank of Commerce and Toronto-Dominion Bank on Thursday became the youngest members of the Big Six to report such reclaims, releasing or liquidating 31 89 million.

While non-performing loans are technically still being repaid, banks may have to set aside provisions if the macroeconomic picture deteriorates and can later release these reserves if the forecasts brighten. In the first quarter, lenders increased their credit risk reserves for impaired loans, but overall risk provisions in the lending business declined.

“Loan loss provisions decreased significantly, reflecting the improving economic outlook and the impact of continued fiscal and monetary support to the economy and the substantial increase in our loan loss provisioning last year,” said Bharat Masrani, President and Chief Executive Officer of TD Executive, during a conference call for analysts and investors.

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While lower provisions boosted the Big Six banks ‘recent results – and all lenders reported profits that exceeded analysts’ expectations – they could also bode well for the economy as a whole.

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Canaccord Genuity analyst Scott Chan said in a statement to the Royal Bank of Canada that the lender had a small reserve release on its upgraded loans, similar to that of the Bank of Montreal, which was less than four percent of reserves built the previous year Fiscal year.

“Like their colleagues,” added Chan, “the bank warned of an improving economic environment from legal vaccines and introductions (e.g. GDP, employment, property prices); albeit in the short term with the pandemic challenges. “

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TD’s total PCLs were $ 313 million for the first quarter, down 66 percent year over year. Part of the reason was a recovery of $ 153 million in provisions for bad loans, in part due to the improved economic outlook, which enabled the liquidation of reserves in the bank’s US consumer loan portfolios.

TD also said Thursday that first quarter earnings were up 10 percent year over year to $ 3.3 billion. Adjusted earnings per share also rose 10 percent to $ 1.83, better than what analysts had expected to be $ 1.50.

The bank’s Canadian retail unit reported net income of approximately $ 2.04 billion for the three-month period ended Jan. 31, a 14 percent year-over-year increase that reflected lower loan loss provisions (PCLs) and higher revenues, according to TD.

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CIBC, meanwhile, reported earnings of $ 1.625 billion for the quarter ended January 31, an increase of 34 percent year over year. Adjusted for some acquisition-related costs, the bank said its earnings per share for the three-month period were $ 3.58, 10 percent higher than last year and better than the analyst consensus estimate of $ 2.81.

CIBC’s capital markets operations posted net income of $ 493 million for the first quarter, up 30 percent from a year earlier, helped by increased trading activity. The lender’s private and commercial banking division for Canada also saw profits jump 13 percent year over year to $ 652 million as the amount of money earmarked for potential loan losses decreased.

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“We remain well capitalized, we remain well equipped and will continue to adapt usefully to the changing macroeconomic environment,” said Victor Dodig, President and CEO of CIBC, during a conference call Thursday morning.

According to CIBC, provisions for loan losses were $ 147 million in the first quarter, down 44 percent year over year. The amount of money the bank had to set aside to process loans increased during the quarter, allowing for a repayment of $ 89 million.

“The reversal involved transfers to impairments and changes to forward-looking indicators to reflect an improved economic outlook,” wrote RBC analyst Darko Mihelic in a statement to his clients.

However, CIBC’s chief risk officer Shawn Beber noted during the bank’s conference call that losses on impaired loans – such as those where borrowers are 90 days or more in arrears with their payments – are rising and peaking in mid-2021 After that, however, the lender sees a decline in the impaired losses as the economy continues to recover.

Further reserve releases could also be imminent, provided there are no setbacks in the economic recovery from the pandemic.

“We are more confident than ever, more confident than ever about the adequacy of our reserves and the potential for future releases of certificates,” said Daniel Moore, chief risk officer of the Bank of Nova Scotia, during the lenders conference on Tuesday.

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