Capital markets expected to drive Q1 bank earnings as loan growth lags

TORONTO – Canadian banks are set to report first-quarter results that analysts expect will show an earnings boost from trading as well as muted loan growth amid a still-tepid housing market.

Banks have been able to drive their earnings higher in recent quarters despite economic headwinds as their capital markets divisions have benefited from frothy stock markets and corporate activity. 

The first quarter, which includes a bump from year-end trading, should continue the trend despite lower fee revenue in capital markets, said RBC analyst Darko Mihelic in a note.

He warned investors, however, that given the contrast between bank valuations and weaker Canadian economic data, any signs of slowing momentum could make further stock gains difficult.

“We suggest approaching the group with caution,” he said.

The weaker economic data includes home sales that have shown continued downward pressure.

The Canadian Real Estate Association says home sales in January fell 16.2 per cent compared with a year earlier, and December sales were down 4.5 per cent from the same month a year earlier. 

The job picture has been mixed, with unemployment dropping in January because fewer people were looking for work, while the actual number of people with jobs fell by 25,000. 

Overall, RBC expects the latest GDP figures to be released on Friday will show Canadian economic growth flatlined in the fourth quarter. 

The trends have kept loan growth subdued at banks, but hasn’t become enough of a strain to significantly shift bank provisions for potentially bad loans.

Banks built up their provisions as interest rates rose and a wave of mortgage renewals heightened fears of a spike in defaults, but so far that hasn’t happened with delinquency rates still below long-term trends.

Provisions should continue with the trend, but any downward shift would be notable, said National Bank analyst Gabriel Dechaine.

“Although we don’t expect it, any changes to the credit outlook so soon after reiterating the base case of ‘improvement in the second half’ could hit sector valuation,” he said in a note.

Given the lack of loan growth, banks are instead devoting more capital to share buybacks, which not only boost stock prices but also the crucial earnings per share metric.

Overall, earnings coming in ahead of expectations in the first quarter could also boost the longer-term outlook for earnings per share, said Scotiabank analyst Mike Rizvanovic.

“We remain positive on the large Canadian banks heading into Q1 earnings season that we suspect will once again feature strong results in market-sensitive businesses, upside to all-bank margins … and credit losses remaining in a very manageable range.”

Scotiabank reports Tuesday, BMO Financial Group and National Bank of Canada are set to report their results on Wednesday while CIBC, TD Bank and Royal Bank of Canada are scheduled for Thursday.

This report by The Canadian Press was first published Feb. 23, 2026.

Companies in this story: (TSX:BNS, TSX:NA, TSX:BMO, TSX:RY, TSX:TD, TSX:CM)