Veritas is cutting its price targets on the major Canadian banks due to concerns the Big Six will have to set aside more cash to cover potentially sour loans.
Veritas Investment Research is cutting its price targets on the major Canadian banks due to concerns the Big Six will have to set aside more cash to cover potentially sour loans.
“We expect provisions for credit losses in [fiscal year 2024] to run materially above pre-pandemic levels barring a dovish pivot by central banks. Historically, peak credit losses lag an increase in debt servicing costs by ~two years,” he said. There are already signs the banks are socking away more cash to cover potentially sour loans – provisions for credit losses rose by $1.54 billion across the Big Six in the fiscal third quarter, nearly 10 times the $166 million increase in the prior quarter.
“We forecast a high single-digit decline in adjusted earnings for Canada's Big Six banks over the medium term with an increase in PCLs and higher expenses in an inflationary environment more than offsetting higher net interest income from margin expansion and loan growth,” he said.
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