The ability to profit from higher interest rates is becoming a crucial differentiator among Canada’s big banks, with most other parts of their businesses poised to weaken as the economy slows.
Three of the country’s six largest banks beat earnings estimates in the fiscal fourth quarter, with only one of them managing to do so without the benefit of widening net interest margins. Of the three lenders that missed analysts’ projections, two suffered from contracting margins -- the difference between what banks earn on loans and what they pays for deposits.Canadian banks’ net interest margins had suffered for years as central banks kept rates low to keep economies growing.
Toronto-Dominion Bank, which has a large retail-banking presence in both Canada and the US, is making the most of rising interest rates. The bank reported Thursday that its net interest margin expanded to 1.81 per cent in the three months through October, up 7 basis points from the previous quarter.
Net income rose 76 per cent to $6.67 billion, or $3.62 a share. Excluding some items, profit was $2.18 a share, beat analysts’ average estimate of $2.06.Royal Bank of Canada on Wednesday also reported profit that topped analysts’ estimates, helped by widening net interest margins. National Bank of Canada was the only bank that missed analysts’ estimates while also reporting an expanding margin, as it was hampered by outsize exposure to the capital-markets business.
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