Canada’s Banks to Reduce Provisions for Bad Loans: A Positive Outlook Amid Economic Uncertainty
Canadian Banks Anticipated to Set Aside Less for Bad Loans in Q3 Amid Easing Tariff Concerns
By Naimul Karim, Financial Post – August 25, 2025
Canada’s banks are set to share their third-quarter earnings this week. Analysts now expect that banks will set aside less money for bad loans. They see lower risk in borrowers. The easing tariff talks and fewer trade tensions add to this view. Each word links closely to the next, so the ideas stay clear and easy.
A Shift from Prior Quarters
Earlier in 2025, Canada’s Big Six banks acted with care. They saved extra funds for credit risk. In the second quarter, banks raised their funds for potential credit losses. They did this to guard against a possible trade war. U.S. tariffs once spooked the markets and stirred worry. Analysts noted that banks built large buffers then. Now, cooler views and steadier risk checks have emerged.
Growing Comfort Among Investors
Investors feel more at ease today. CIBC World Markets analyst Paul Holden said, “We are now comfortable with credit loss provisions that seem flat. Next year, we may even see smaller amounts.” Even if the 2025 economy is not at full strength, low unemployment and strong credit measures support stability. In recent months, Canadian bank stocks have gained about eight percent on average. Each word here connects simply to show this growing trust.
Economic Barometer and Upcoming Earnings
Canada’s big banks act as clear signals for the national economy. Their earnings tell us not only about their own health but also about wider trends. This week starts Tuesday with Bank of Montreal and Bank of Nova Scotia. Wednesday follows for Royal Bank of Canada and National Bank of Canada, and Thursday concludes with Canadian Imperial Bank of Commerce and Toronto-Dominion Bank. Lower credit loss numbers add a positive note, though some experts remain cautious. John Aiken of Jefferies Inc. warns that stock values may seem too high. When earnings miss, even good news might not lift shares further.
Conclusion
The soon-to-be-released reports show that Canadian banks now need less reserve for bad loans. This change supports a stronger view of financial stability. With tariff concerns easing, investors look past today’s risks to a steadier future.
Contact:
Naimul Karim
Email: nkarim@postmedia.com
Photo Caption:
Canada’s Big Six banks, which hold most of the nation’s financial power, issue quarterly results that help forecast economic health. (Photo by Andrew Lahodynskyj/The Canadian Press files)
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