The Financial Post reports in its Tuesday edition that a more dovish approach by central banks in the United States and Canada could hurt major commercial lenders.
The Post's Geoff Zochodne writes that Canadian banks rode a wave of interest-rate hikes to higher profits in 2017 and 2018, in part because of gains in net interest income, generated by the spread between the higher rates they charge for loans and the lower rates they pay out on customer deposits.
However, with the U.S. Federal Reserve under pressure to cut rates, and the Bank of Canada having backed off its hawkish stance, the banks could have a harder time increasing their net interest margins going forward, analysts say.
Barclays Capital analyst John Aiken wrote recently that a BOC rate-cut could hurt the outlook of lenders which are more exposed to the Canadian market.
Mr. Aiken said in a note: "On the back of five BOC rate hikes, domestic margins were largely positive (for the banks' second quarter), while lending volumes continued to moderate but remained positive. However, with the BOC in a holding pattern on future rate hikes and loan growth moderating, the outlook for net interest income remains tempered."
The holding pattern could persist.
© 2019 Canjex Publishing Ltd. All rights reserved.