Don’t expect spectacular results from Canada’s regional banks – Canadian Western Bank and Laurentian Bank – in their coming reporting season. But don’t fear them falling off a cliff either.
Previewing the earnings reports, analyst Shubha Khan at National Bank Financial expects both to show solid growth.
Despite some early signals that home prices, starts and demand are softening in the housing market, CWB should benefit from its emphasis on subprime residential mortgages. “We expect CWB’s non-prime mortgage subsidiary, Optimum Mortgage, to gain further market share at the expense of larger financial institutions, which have been pulling back from Alt-A lending,” writes Mr. Kahn.
At Laurentian, loan growth could be subdued since consumers’ wallets are still tight and personal credit has seen limited increases. Mr. Kahn took a look at fellow lender Desjardins’ numbers, and concluded that Laurentian would feel a similar interest “margin expansion of 1 basis point quarter over quarter.”
On the downside, even though CWB has seen its impaired loans decrease for the last two years straight, Mr. Kahn suggests that the unstable global economic conditions mean that “delinquencies could slowly begin to rise.” At Laurentian however, the projected ratio of loan losses is about 0.16 per cent, a healthy drop from last year’s 0.25 per cent average.
Yet there’s a caveat there too: “Given comparatively higher loan loss provisions in AGF Trust’s loan book, as well as a softening housing market, we expect the loss ratio to rise modestly in fiscal 2013,” writes Mr. Kahn.