The Globe and Mail reports in its Friday edition that two of Canada's largest banks are reaping rewards from higher interest rates as profit margins on loans increased in the third quarter, though growing economic unease threatens to undercut some of those gains. The Globe's James Bradshaw writes that TD Bank reported lower third-quarter profit, partly because of high costs driven by inflation and rising loan loss provisions. CIBC also saw earnings dip in the quarter, faced with the same headwinds, but both banks recorded good gains in net interest margins -- the difference between what banks charge on loans and pay on deposits. Those profit margins were squeezed in the pandemic as central banks cut interest rates to ultralow levels. As central bankers have rapidly jacked rates up again to fight high inflation, it is allowing lenders to reprice loans and deposits and eke out more profit. Banks expect margins will continue to increase in the coming quarters, albeit at a slower pace. They also acknowledged that with inflation running high, borrowing costs rising and significant economic uncertainty, demand for new loans -- especially residential mortgages -- could dip. Also, loan defaults could start to creep higher.
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