Canadian Banks Brace for Lack Luster Consumer Lending

“Canada’s banks, recognized as the world’s strongest after a year of record profits and rising share prices, will begin to show the effects of a slackening in domestic consumer lending when they report first-quarter results next week.

“The Canadian banks did very well through all of this mess,” said John Kinsey, who helps manage about C$1 billion ($981 million) at Caldwell Securities Ltd. in Toronto, including bank shares. “Now this is kind of a reality check.”

Royal Bank of Canada (RY), which is trading near an all-time high, Toronto-Dominion Bank (TD)and the country’s four other main lenders are expected to post a 6.9 percent increase in per-share profit excluding some items for the quarter ended Jan. 31, according to Darko Mihelic, an analyst at Cormark Securities Inc. in Toronto.

Canadian banks will probably underperform their U.S. peers, which are starting to see signs of retail banking tailwinds, said John Aiken, an analyst at Barclays Plc. Barclays cut its rating forCanadian Imperial Bank of Commerce to underweight from equal weight, and National Bank of Canada to equal weight from overweight, due to greater reliance on domestic retail banking. The firm raised the rating for Bank of Nova Scotia to overweight and for Royal Bank to equal weight from underweight.

The nation’s banks, ranked the world’s soundest by the World Economic Forum for five straight years, face a consumer- lending slowdown as Canadians struggle with record debt levels and a cooling housing market. Finance Minister Jim Flaherty reduced maximum amortization periods for mortgages last year to rein in borrowing. Bank of Canada Governor Mark Carney has repeatedly warned about carrying too much debt….”

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