Dramatically lower loan loss provisions drove a strong rebound in second quarter profit at National Bank of Canada, wrapping up a robust earnings season for Canada’s big banks.
National, the nation’s sixth largest bank by assets, posted net income of $484-million for the quarter that ended on April 30, compared to $210-million a year earlier – a 130-per-cent increase.
The results in the same quarter of 2016 were weighed down by a $317-million provision for credit losses – much of that related to the energy sector, which was caught in a tailspin.
The company set aside only $56-million for bad loans in the second quarter of 2017, better than the $63-million that analysts had expected.
On an ex-items basis, National reported a profit of $1.30 per share – 4 cents better than analysts surveyed by Thomson Reuters were expecting.
“Each business segment posted double-digit earnings growth, contributing to the bank’s excellent performance for the second quarter of 2017,” said Louis Vachon, chief executive officer of National Bank in a statement.
Profit in its wealth management division rose 25 per cent to $105-million. Capital markets income rose up by 17 per cent to $175-million, buoyed in part by strength in fixed income trading.
Shares in National Bank rose in early trading on Thursday on the Toronto Stock Exchange.
National Bank’s common equity tier 1 (CET1) capital ratio – a measure of its financial cushion, came in at 10.8 per cent, up marginally versus the previous quarter. The Quebec-based bank also increased its quarterly dividend by 2 cents a share to 58 cents, and announced it intends to buy back up to 2 per cent of its shares outstanding.
“National reported a strong quarter for earnings but, more importantly, continues to put capital concerns to rest with an increase in its capital ratio and moves to return capital to shareholders,” wrote John Aiken, analyst with Barclays in a note to clients.
“We believe that this should go a long way to further ease the overhang related to unease in its relative capital levels and, we would expect to see some outperformance on the stock coming out of the quarter.”
This has been another strong earnings season for Canada’s big banks with all but Bank of Montreal posting analyst-beating results with improving credit quality being a major theme.
Before the bank’s released their quarterly numbers, investors had fretted about possible contagion from alternative lender Home Capital Inc.’s travails. Bank executives have so far played down any risk of a wider impact on the overall financial system.