Canadian Banks Miss Estimates Thanks in Part to Interest Rate Hikes

Scotia Bank and the Bank of Montreal both missed quarterly profit targets this week as they struggle through the Bank of Canada’s interest rate hikes that have come almost on a monthly basis over the course of a year.

Consumer debt is rising even while mortgage payments have stalled… an almost perfect storm for lackluster earnings growth. While BMO noted that the bank reported one time severance costs in the earnings that could lower expenses, the housing market in most regions in Canada have stalled.

Scotia Bank also mentioned limited discretionary income for consumers that could reduce spending and effect the economic outlook blaming the change on inflationary pressures even while margins grew on typical adjustable mortgages.

"We are closely monitoring customer behavior and have observed a very rational and responsible shift in spending as households manage through this period of reduced discretionary income," Scotiabank CEO Scott Thomson stated. The bank is well capitalized, however, a positive position noted by analysts.

The issue is less so potential danger with Canadian’s largest banks on defaulting as it is a lack of a clear short term pathway for growth if markets stay the economy is consistent.