Banks poised for 'solid growth' in Q2 despite uncertain economic backdrop: analysts

John Aiken, director of research on Canadian financials at Jeffries, joins BNN Bloomberg to discuss Canadian banks.

TORONTO — As Canadian banks get set to report second-quarter results next week, analysts expect year-over-year gains despite a “challenging” operating environment and slowing loan growth.

Even with “serious potential headwinds,” Canadian banks are still seeing near historically high valuations, a trend that should continue this quarter, said Jefferies analyst John Aiken in a note on Tuesday.

But he said any uncertainty “surrounding promised robustness of the second half of 2026 could potentially upset the apple cart.”

“While the results should be solid, much will hinge on the conviction of management’s commentary to support current levels,” Aiken said.

The second-quarter results should resemble the previous three months, he said, which were characterized by slowing — yet still positive — loan growth, along with elevated but not critical credit losses.

“Provisions for credit losses will likely remain elevated but not spike or cause any material indigestion,” he said.

Scotiabank analyst Mike Rizvanovic said he anticipates the quarter to show an uptick in provisions for credit losses — money set aside by banks to cover bad loans.

“Credit will be a closely watched theme this quarter given heightened macroeconomic risks related to elevated oil prices and a weak Canadian housing market, with added stress from a rising unemployment rate that was at a six-month high in April 2026,” he said in a note.

The bank results come against the backdrop of a still uncertain domestic economy.

The national unemployment rate increased 0.2 percentage points in April to 6.9 per cent as more people searched for work, Statistics Canada said. The rate has risen 0.4 percentage points since January, but remains below the recent peak of 7.1 per cent in August and September 2025.

Weaker economic data of late also includes home sales that have yet to rebound on a national basis from last year’s slowdown.

The Canadian Real Estate Association said home sales in April fell four per cent compared with a year earlier, as prices fell on a year-over-year basis in B.C., Alberta and Ontario, which offset gains in other provinces.

Questions also continue to surround the future of Canada’s trade relationship with the United States. Last month, StatCan said preliminary data suggests GDP expanded 1.7 per cent on an annualized basis in the first three months of the year, with an official estimate to be released next week.

All of Canada’s Big Six banks beat earnings expectations last quarter as the economy overcame elevated unemployment and deep trade issues.

Analysts said the broad earnings beats were largely related to boosts from capital markets, though the banks performed well in other segments too.

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Rizvanovic said strong recent stock price performances among the group imply that shares already reflect another quarter where earnings per share will come in “comfortably ahead of consensus expectations.”

He said he expects earnings per share overall to show “solid growth” of 19 per cent in the second quarter relative to the same period a year ago, which was adversely impacted by a reserve build for tariff-related risk.

Aiken said he expects further ongoing positive contributions from capital markets and wealth management, however the effect is not likely to be as significant as it was last quarter.

“Given a less than stellar outlook and lingering uncertainty stemming from the Iran war and little clarity on the ultimate shape of the (Canada-United States-Mexico Agreement) negotiations, we continue to believe that the Canadian banks are fully valued,” said Aiken.

“Any shift toward a more conservative commentary, after previously arguing for a better second half, will likely be viewed negatively.”

Scotiabank, BMO Financial Group and National Bank of Canada are set to report their results on Wednesday while CIBC, Royal Bank of Canada and TD Bank are scheduled for Thursday.

This report by The Canadian Press was first published May 22, 2026.

Sammy Hudes, The Canadian Press