Canadian Banks Report Mixed Results in Q2 -Fitch
Canadian banks saw mixed results for 2Q26, according to Fitch Ratings. Most institutions reported modestly lower top-line numbers, primarily driven by three fewer calendar days in the quarter and pressure on net interest income.
Aggregate revenues in Q2 2026 decreased by 3% from Q1 2026 across the federal domestic systemically important banks (D-SIBs) for their fiscal quarter (ended April 30) and Desjardins Group’s calendar quarter (ended March 31).
Fitch said Aggregate adjusted net income was down 5% from the linked quarter. Canadian personal and commercial banking revenue declined modestly by 3% sequentially, driven by the shorter quarter, despite supportive net interest margin (NIM) trends and modest volume growth.
Similarly, international banking, including U.S. banking, saw a 5% decrease in revenue in 1Q26 due to slower momentum and the derecognition of certain assets.
Wealth management was broadly resilient, but revenue declined 2% from the linked quarter. Capital markets softened over the quarter with a 4% decline in revenue.
Despite a relatively healthy quarter for advisory and investment banking, aggregate adjusted trading revenue was down 18% in Q2.
The peer median NIM retracted by 8 basis point to 1.61% in 2Q26 but was actually up 2 bps on an average basis to 1.68%. Most banks reporting deposit margin improvement mostly due to product mix shifts.
Positive operating leverage remains a sector-wide theme. Expenses declined quarter on quarter across most banks, reflecting the shorter quarter and the absence of Q1 severance charges.
The average reported efficiency ratio (excluding Desjardins) was flat at 54% for 2Q26. Most banks are continuing with their strategic investments in technology, AI, and digital capabilities.
Provision for credit losses (PCLs) improved by 2% qoq as the credit picture slightly improved from the linked quarter, primarily driven by performing loan recoveries/releases as 1Q26 tariff-related macro provisions moderated.
Fitch said the average PCL to gross loans ratio remained flat at 0.40% in 2Q26. Most banks have maintained their PCL guidance for 2026, which Fitch expects to be in a similar range to 2025.
Loan growth was modest but positive as most banks are optimizing their balance sheets. Overall aggregate gloss loans were up 1% in 2Q26. Personal and commercial lending was flat from 1Q26 levels. Banks actively managed their unsecured consumer credit, because the economy remains weak due to uncertainty from ongoing tariff negotiations.
Wholesale lending rebounded with loans up 3% during the quarter. Most banks have guided to mid-single digit loan growth in 2026.
Impaired loan trends show gradual normalization in consumer portfolios, as unsecured consumer (particularly cards and personal lending) continues to experience migration, while commercial credit was broadly stable.
Consequently, the median gross impaired loan ratio (GIL) rose to 0.90% in 2Q26 from 0.86% in 1Q26. Aggregate deposits were up 2% on average.
Deposit trends were mixed, with an ongoing structural shift from higher-cost term deposits toward transactional and savings accounts, which Fitch expects to support deposit margin expansion over the medium term.
Capital remains strong, with the median common equity Tier 1 (CET1) ratio at 13.5% in 2Q26. This implies a 200-bp buffer above regulatory minimums, which Fitch views as prudent in the current economic environment.
Banks continue to prioritise capital deployment for organic growth opportunities, followed by share buybacks, with most banks increasing dividends for the quarter. 464 of S&P 500 Companies Beat Q1 Earnings Target
