Canada's Big Banks Project Confidence Amid Escalating US Trade Tensions
As Canada's largest banks reported their third-quarter financial results this week, executives projected a sense of calm in the face of escalating trade tensions with the United States, emphasizing the resilience of the domestic economy and downplaying the immediate impact of tariffs on their operations.
The week's earnings season began with Bank of Montreal and Scotiabank on Tuesday, followed by National Bank on Wednesday, and Royal Bank of Canada, Toronto-Dominion Bank, and CIBC on Thursday. Against a backdrop of political threats and financial aid measures, the banks' leadership signaled that while uncertainty persists, the challenges appear largely manageable.
Bank Executives See Manageable Impact, But Acknowledge Headwinds
Scotiabank chief executive Scott Thomson labeled the recent trade volatility "manageable," citing strong fundamental indicators in Canada. "The fundamentals in Canada are pretty good, if you look at the job growth numbers, if you look at the fiscal capacity on the back of oil prices, and if you look at some of the activity that's starting because of the prime minister's agenda," he said on the bank's third-quarter earnings call. "You actually have a backdrop that's pretty good."
RBC CEO Dave McKay echoed this sentiment, pointing to the relatively low average effective tariff rate of approximately six per cent after the recent US actions. "While Canada and the U.S. have yet to come to a longer-term solution, we note that over 80 per cent of exports remain duty-free," he said.
Tariffs and the Banks' Exposure
The trade dispute has intensified, with President Trump imposing 50 per cent tariffs on about $28 billion worth of Canadian products. In response, Ottawa has implemented dollar-for-dollar tariffs on a range of US products.
However, the banks' direct exposure to these levies appears limited. Scotiabank reported that the new tariffs directly impact less than one per cent of its total loan book, and CIBC noted its most sensitive business lending exposures to tariff impacts also represent less than one per cent of its total loan portfolio.
BMO CEO Darryl White characterized the overall impact as having a very high chance of being mitigated in many ways. He argued that the current tensions could serve as an opportunity to remove interprovincial trade barriers and accelerate the prime minister's agenda. White also expressed optimism about the potential benefits of President Trump's "America First" stance, suggesting it could ultimately benefit Canada's economy.
CIBC Builds Reserves While Positive on Domestic Trends
CIBC's chief risk officer, Frank Guse, reported that the bank's credit performance remained resilient through the quarter. "We have built additional reserves for tariff-related risks through expert credit judgment overlays since the beginning of fiscal '25 and continue to build our allowance this quarter," he explained.
CIBC chief executive Harry C. Culhane pointed to Canada's renewed focus on sovereignty and economic resiliency, describing it as creating one of the most significant capital mobilization efforts and opportunities in decades. This sentiment was echoed by National Bank's CEO Laurent Ferreira, who expressed encouragement at how governments and business leaders are mobilizing around Canada's economic priorities.
Market Reaction and Broader Implications
Despite the trade uncertainties, shares of Canada's largest banks are trading near all-time highs. Scotiabank's stock rallied seven per cent on Tuesday, and BMO shares also gained about one per cent. The market response reflects investors' acceptance of the executives' message that the tariffs, while a headwind, remain only a manageable challenge.
Executives have acknowledged that the tariffs and unpredictable trade environment will heavily impact certain sectors and Canadian consumers, even if the banks themselves are insulated as a direct cost. Their assessment suggests a cautious optimism. They view the situation as one that, while uncertain, can be navigated successfully, and may even spur domestic policy to fortify the Canadian economy's long-term resilience.