TD Bank Group, Canada’s second-biggest lender by market value, fell short of analysts’ estimates for third-quarter profit on Thursday, hurt by higher provisions for loan losses and pressure on margins that have also plagued its rivals.
The bank, the last major Canadian lender to report results for the quarter ended July 31, also warned of further margin compression from slowing economic growth and uncertainties stemming from trade concerns and Brexit.
Top banks in the country, including Royal Bank of Canada and Bank of Montreal, have raised the amounts set aside to cover bad loans as household debt remains elevated and the oil and gas industry in particular continue to struggle.
Total provisions at TD Bank jumped 17 per cent to $655 million in the quarter, as provisions at the domestic retail unit soared 28 per cent, in part driven by higher insolvencies in credit card and other personal lending.
Montreal-based lender Laurentian Bank of Canada on Thursday said loan-loss provisions jumped to $12.1 million in the third quarter, from $4.9 million a year earlier.
TD Bank’s increase in provisions was somewhat mitigated by 11 per cent growth in adjusted earnings from TD Bank’s U.S. retail business and a 9 per cent increase in wholesale banking, which includes capital markets and investment banking. Canadian retail income rose 3.4 per cent.
But net interest margins were pressured, with a three-basis-point increase in the Canadian retail operation more than offset by a six-basis-point drop in the U.S. retail business.
“The strain from the lower interest rate environment was evident as it was for other banks this quarter,” Robert Sedran, an analyst at Canadian Imperial Bank of Commerce, wrote in a note.
TD bank joined other Canadian lenders in noting that the macroeconomic environment has become less supportive as it heads into the final quarter of the year.
“We do see some compression in margins that can arise from the overall interest rate environment,” chief financial officer Riaz Ahmed said, adding that this “is good for the economy and could possibly be mitigated by volume increases and better credit performance.”
The bank’s net income rose 4.6 per cent to $3.25 billion , or $1.74 per share, from a year earlier.
On an adjusted basis, the lender earned $1.79 per share. Analysts had expected earnings per share of $1.80, according to IBES data from Refinitiv.
© Thomson Reuters 2019