TD Bank Group, Canada’s second-biggest lender by market value, fell short of analysts’ estimates for third-quarter gain on Thursday, hurt by higher provisions for loan losses and pressure on margins which have also plagued its competitors.
The lender, the last major Canadian creditor to report results for the quarter ended July 31, also warned of further margin compression from slowing economic growth and doubts stemming from trade concerns and Brexit.
Top banks in the nation, such as Royal Bank of Canada and Bank of Montreal, have increased the amounts set aside to cover bad loans as home debt remains elevated and the oil and gas sector in particular continue to fight.
Total provisions at TD Bank jumped 17 percent to $655 million in the quarter, as provisions in the national retail unit soared 28 percent, in part driven by greater insolvencies in credit card and other private lending.
Montreal-based lender Laurentian Bank of Canada on Thursday said loan-loss provisions jumped to $12.1 million in the third quarter, from $4.9 million a year earlier.
TD Bank’s growth in provisions was somewhat mitigated by 11 percent increase in adjusted earnings from TD Bank’s U.S. retail industry and a 9 percent growth in wholesale banking, including capital markets and investment banking. Canadian retail income rose 3.4 percent.
But net interest margins were pressured, using a three-basis-point gain in the Canadian retail performance more than offset by a six-basis-point fall from the U.S. retail company.
“The strain from the reduced interest rate environment was evident as it was for other banks this quarter,” Robert Sedran, an analyst at Canadian Imperial Bank of Commerce, wrote in a note.
TD bank joined other Canadian creditors in imagining that the macroeconomic environment has become less supportive as it heads into the last quarter of this year.
“We do see some compression in margins that could occur from the general interest rate environment,” chief financial officer Riaz Ahmed said, adding that this”is good for the market and may potentially be mitigated by volume increases and better credit ”
The bank’s net income rose 4.6 percent to $3.25 billion, or $1.74 per share, from a year before.
On an adjusted basis, the lender earned $1.79 per share. Analysts had expected earnings per share of $1.80, based on IBES data from Refinitiv.