Bank stocks jumped almost 40% before Q1 2026, but consumer loans look shakier
Canada’s biggest banks are heading into Q1 2026 earnings with stocks up almost 40 percent last year and trading near 2009‑style valuation peaks, even as consumer credit stress starts to creep higher.
According to Reuters, Canada’s Big Six posted a “blockbuster year” in 2025, with three banks beating profit estimates in all four quarters and the other three beating in three out of four.
Those results, plus “strong earnings from wealth management and capital markets,” helped bank stocks climb an average of 38.6 percent, ahead of the S&P/TSX Composite’s 28.3 percent gain, and they are already up between 1 percent and 12 percent so far this year.
The earnings season opens with Bank of Nova Scotia, with analysts forecasting a 7.7 percent drop in loan loss provisions and a 10 percent rise in net income, followed by Bank of Montreal and National Bank of Canada, then Royal Bank of Canada, TD Bank and CIBC, as per Reuters.
Valuations are front and centre.
Canadian bank stocks now trade at a premium, with multiples “hovering around levels last seen in 2009,” prompting RBC Capital Markets analyst Darko Mihelic to “suggest approaching the group with caution” given weaker recent Canadian data.
The Financial Post reported that National Bank of Canada analyst Gabriel Dechaine said sector valuations “defy conventional thinking” against a backdrop of weak GDP, rising unemployment and trade uncertainty.
Canaccord Genuity analyst Matthew Lee said the Big Six’s multiples are “far above historical levels,” though still at roughly 0.6 to 0.7 times the S&P/TSX Composite, and he sees “upside to the bank equities” based on strong balance sheets, well‑provisioned credit and the “potential for multiple years of low double-digit EPS growth.”
Bank of Nova Scotia analyst Mike Rizvanovic said historical multiples are “far less relevant today” and does “not foresee the likelihood of multiple expansion in the near term,” so upside would depend on earnings.
Scotiabank’s latest numbers show how that trade‑off looks in practice.
BNN Bloomberg reported that the bank’s net income jumped to $2.3bn from $993m after a prior‑year $1.4bn impairment on international sales, with revenue up to $9.65bn from $9.37bn.
Profit rose to $1.73 per diluted share from $0.66, while adjusted earnings hit $2.05 per diluted share, beating the $1.95 consensus from LSEG Data & Analytics.
Bloomberg said adjusted return on equity improved to 13 percent from 11.8 percent, and Scotiabank now expects to hit its 14 percent ROE target in 2027 instead of 2028.
At the same time, Scotiabank’s Canadian banking division is seeing more credit strain.
BNN Bloomberg reported that segment profit rose to $960m from $913m, but provisions for potentially bad loans increased 7 percent year over year to $576m and about 17 percent quarter over quarter.
Business and personal loans were both down 1 percent, while mortgage loans were up 5 percent, and gross impaired loan formations in Canadian retail rose from $870m in Q2 2025 to $1.11bn in Q1 2026.
Scotiabank’s overall provision for credit losses was $1.18bn for the quarter, up from $1.16bn a year earlier.
Bloomberg reported that chief risk officer Shannon McGinnis told analysts Scotiabank expects provisions for impaired loans to stay elevated in the first half of the year and then come down in the last six months, depending on the broader economy.
She pointed to mortgages originated during the pandemic, with low rates and elevated home prices, as “a group we are seeing having some stress,” especially in Ontario and the Greater Toronto Area.
Capital markets and wealth remain key profit drivers.
The Financial Post said analysts expect “solid capital markets and wealth management income, positive operating leverage and contained credit losses” to support Big Six earnings this quarter.
Bloomberg reported that Scotiabank’s wealth‑management, capital‑markets and international units all beat forecasts, with capital markets net income at $544m versus a $498m estimate and wealth management at $484m versus $457m.
Market conditions are helping.
Reuters reported that the S&P/TSX Composite Index closed at a record 33,970.38, up 0.6 percent, led by a 1.8 percent gain in the materials sector as copper hit a 12‑day high and gold, despite a 1.4 percent daily drop, remained more than 17 percent above its low this month.
AlphaNorth Asset Management’s Steve Palmer told Reuters, “We’re in a resource bull market and that’s the main theme,” noting that resource names make up about 38 percent of the TSX.
Credit remains the main swing factor.
As per the Financial Post, Dechaine called the credit outlook “arguably the biggest source of forecast uncertainty” and said many investors are asking whether banks will reach a “peak PCL” in 2026 and start releasing provisions.
Lee warned that “consumer weakness and a softening residential real estate market could put pressure” on domestic credit, and said Canadian residential real estate development will be an area of focus given “declining urban condo prices and the capital-intensive nature of the business.”
BNN Bloomberg added that 2026 is “essentially the final year of the five-year mortgage renewal cycle” for borrowers who locked in much lower rates in 2021, which could support net interest margins as renewals reset higher.
At the same time, BNN Bloomberg cited Benjamin Klein of Baskin Wealth Management on a “modest uptick in delinquencies on auto loans and credit cards,” and on the view that major banks’ emphasis on prime borrowers has so far pushed more stress into alternative and subprime lenders.
Desjardins Group shows a similar mix of stronger earnings and higher provisions in the co‑operative space.
Surplus earnings before member dividends reached $1.06bn in the quarter ended December 31, up from $826m, with full‑year 2025 surplus earnings at $3.81bn versus $3.36bn in 2024 and revenue up to $16.31bn from $14.66bn.
Provisions for credit losses fell year over year in Q4 but rose to $688m for all of 2025 from $597m in 2024, and the group ended the year with $510.2bn in assets and more than 10 million clients.
