In Alberta, banks have weathered oil's storm – so far

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Evidence is mounting that Canada's banks have largely escaped the economic impact of oil's price plunge over the past year – at least for now.

Even Canadian Western Bank, whose home base is in Alberta, is showing that it is perfectly capable of reporting strong profit and low credit losses. The earnings come on the heels of better-than-expected profits from all of Canada's Big Six banks last week. But observers aren't convinced that the good news will last.

Canadian Western on Thursday said its third-quarter profit from continuing operations fell just 3 per cent from last year, to about $51-million or 65 cents a share – a mere flesh wound next to the devastating injury to the price of oil.

While the bank's profit was slightly below expectations among analysts, the results nonetheless suggested that the Edmonton-based lender appears to be riding the energy-sector downturn in Alberta rather well.

Even bad loans weren't so bad. Although the lender's provision for credit losses rose 15 per cent from last year, they amounted to just $8-million. The bank estimated that its annual provision for losses will be within its range of 0.17 per cent and 0.22 per cent of total loans, or in line with what the bank believes are acceptable levels. Meanwhile, the loan book continues to grow, even in Alberta, the source of 42 per cent of the bank's total loans.

"As operators in Western Canada, we always respect the business cycle," Chris Fowler, chief executive officer of Canadian Western, said during a conference call with analysts – clearly addressing the thought on everyone's minds. "We've managed through many cycles before and we've successfully grown and thrived, even when [Canadian Western's] operations were much less robust and diversified than they are today."

The performance of Canadian Western appears at odds with the economic health of its home market in Alberta, which is already reeling from low oil prices. The provincial government estimated that economic activity will contract by 0.6 per cent in 2015, down a full percentage point from a forecast in March, as the low price of oil shows few signs of recovering.

Canadian Western's share price reflects this bleak outlook: It has collapsed 45 per cent over the past year to five-year lows. It was down 2.3 per cent on Thursday afternoon, even as the stocks of big banks rallied.

Some analysts believe that the bad operating environment will catch up with Canadian Western, whose loan exposure to the oil and gas sector, at 6 per cent of total loans, is about three times larger than the average for the big banks.

"Despite no evidence of credit deterioration and no evidence of an imminent slowdown in loan growth, we believe we are still early in the cycle and the impact of a sustained low oil price environment on [Canadian Western] remains uncertain, in our view," Darko Mihelic, an analyst at RBC Dominion Securities, said in a note.

In other words, the upbeat results from Canadian Western are being met with shrugs: See you next quarter.