Streetwise: Will Big Six banks ever see lending slow?

Heading into the last few bank earnings seasons, the common expectation among analysts was that lending would start to crater. Consumer debt levels are already in the stratosphere, and businesses are both flush with cash and hesitant about the economy.

And yet the banks have continued to put out solid quarterly numbers. Analyst Rob Sedran at CIBC World Markets noted that last quarter "loan growth was especially robust considering the macro environment."

What gives? Well, last quarter average personal loan volumes were up about 2 per cent on the back of residential mortgages growth, while commercial volumes jumped 3.1 per cent because businesses weren't so spooked.

Across the Big Six, gross loans were up about 3 per cent quarter-over-quarter, with CIBC being the only outlier, at 0.5 per cent. Year-over-year, the Big Six's average loan growth is 9.5 per cent.

Does this mean the analysts will finally change their tune? Not exactly. In his new note summarizing the quarter, Jason Bilodeau at TD Securities noted that while "loan growth held in better than expected again this quarter... the outlook suggests to us that trends are set to decelerate materially in the coming quarters."

One key factor: changes to mortgage rules. The shorter amortization periods didn't come into effect until early July, so next quarter will be the first time they affect all three months.

But Mr. Sedran isn't very pessimistic. "We have revised the composition of our estimates somewhat to reflect the fact that while loan growth is indeed slowing, it is proving to be more resilient than we had previously anticipated." However, "our expectations on the margin have become more subdued in roughly the same proportion, leaving our revenue assumptions broadly intact."

What exactly does that mean we can expect? The underlying message appears to be more of the same, which is super for the banks, should it happen. Average earnings growth for the large banks was 5 per cent over the previous quarter and 9 per cent over the previous year.