Canada’s largest banks are expected to demonstrate continued financial strength as earnings season gets underway, though analysts warn that stretched share valuations could limit further upside.
The reporting cycle for the country’s “Big Six” banks begins Tuesday with results from Bank of Nova Scotia and concludes two days later with Toronto-Dominion Bank. Together, the updates will offer investors a fresh look at how the sector is navigating a slowing economy, cautious borrowers, and an uncertain global backdrop.
Analysts anticipate a continuation of recent earnings drivers, including solid contributions from capital-markets and wealth-management divisions. While overall loan growth is expected to remain subdued and credit losses may edge higher, capital ratios are widely seen as staying comfortably above regulatory minimums. Credit quality, meanwhile, is expected to remain broadly resilient.
Despite these positives, valuation remains a sticking point. “The biggest challenge for the group is elevated valuation multiples,” said Paul Holden, an analyst at CIBC Capital Markets.
Shares of the Big Six banks have risen between 10% and 16% over the past three months. After their previous quarterly results, banks projected improving returns on equity in the years ahead, even as they maintained elevated capital buffers to guard against potential risks.
Holden estimates the group is trading at an average price-to-earnings ratio of about 13.7 times, well above the 10-year average of 10.6 times. RBC Capital Markets analyst Darko Mihelic pegs the banks at roughly 14 times forward earnings and notes that the second fiscal quarter is typically the weakest period of the year due to fewer calendar days and softer capital-markets and wealth activity.
Macroeconomic concerns continue to cloud the outlook. Anxiety among Canadian businesses and consumers over trade tensions, job security, and U.S. tariffs remains elevated. Although the unemployment rate eased to 6.5% in January, it is still considered high, and the Bank of Canada has warned that economic growth in 2026 is likely to be sluggish after activity appears to have stalled late last year.
To sustain recent share-price gains, banks may need to deliver more optimistic outlooks. “Any tempering of enthusiasm on revenues or provisions for credit losses could disappoint,” Mihelic said, adding that upward earnings revisions may be necessary to keep stocks trending higher.
Investors will also be watching for signs of differentiation among the lenders. Capital-markets businesses are expected to benefit from investment-banking activity, potentially offset by weaker fee income. Collectively, the banks are projected to show modest expansion in return on equity and stronger net interest margins, alongside slightly higher credit losses. Dividend announcements are unlikely, as the first fiscal quarter is not typically when banks review payouts.
In a preview of earnings season, BofA Securities described the environment as one of “suspended animation,” noting limited near-term differentiation in operating trends. Still, it highlighted Royal Bank of Canada as offering an attractive risk-reward profile after the valuation premium of the country’s largest bank narrowed relative to its peers.
As earnings roll in, investors will be weighing the banks’ underlying resilience against the growing risk that optimism is already priced into their shares.