You won’t be surprised to hear that Canada’s big banks are raking in cash during a positive earnings season, but some are doing unusually well and have higher interest rates to thank.
Driving the news: TD, RBC, and Scotiabank all reported higher-than-expected earnings, largely due to better margins on their loans business.
- “Net interest margins,” the difference between what banks offer customers for deposits and what they charge for loans, have improved with rising interest rates.
Catch up: In the rock-bottom rate environment leading up to the pandemic, banks earned a relatively small margin on loans and focused instead on growing their fee-based lines of business, like wealth management and capital markets.
- Two of the three big banks that missed earnings expectations failed to improve their net interest margins, an indicator of how important the metric has become for the industry.
Why it matters: Growing margins on loans may be good for the banks, but it’s not great news for retail customers—borrow money (or racking up big credit card bills) is getting more expensive, but the interest banks pay for our deposits isn’t rising proportionally.