Canadian banks begin reporting results for their second quarter next week, with Bank of Montreal first out of the gate on May 23.
Despite a softer market than in the previous quarter, earnings for the large Canadian lenders will grow by an average of 5.7 per cent, forecasts Robert Sedran, analyst with CIBC World Markets.
He expects dividend increases this quarter from National Bank , Canadian Western Bank and Laurentian Bank . (Royal Bank of Canada , Toronto-Dominion Bank and Bank of Nova Scotia announced hikes last quarter). Bank of Montreal is unlikely to increase its dividend payout until later this year at the earliest, he said in a report published on Sunday.
For the full fiscal year, Mr. Sedran is maintaining his outlook of 7.5 per cent average profit growth at the large banks and 7.1 per cent for fiscal 2013.
Among the key areas he suggests watching is capital markets related revenue (CMRR), which includes trading fees. This segment is expected to decline from the previous quarter, following the deterioration of stock markets in April. CMRR will decline by 4.5 per cent from the previous quarter, Mr. Sedran predicts.
Revenue from interest lending charges should be up 12 per cent year-over-year, but that figure reflects acquisition and business growth during the year. "Momentum here is clearly slowing," he writes.
Provisions for credit losses should be largely unchanged for the big banks, with the exception of Bank of Montreal, which reported a large recovery last quarter, he said.
The banks' ability to manage their expenses will become increasingly important for boosting earnings given the low-interest rate environment and weak capital markets.
"We continue to favour the three larger banks [TD Bank, Scotiabank and Royal Bank] believing that they are better positioned to grow revenues and protect operating leverage," Mr. Sedran wrote. (Analysts generally do not cover the bank they work for).