Narrow loan margins mar Canada bank profit gains
Canadian banks are bracing for an expected slowdown on domestic consumer lending growth as a cooling housing market, combined with concerns about record Canadian debt loads, prompt more caution among borrowers.
Loan volume at BMO's flagship Canadian retail bank grew by about 8 percent year-over-year, but interest margins narrowed to 2.67 percent from 2.88 percent, as loans were renewed at current rock-bottom interest rates.
Income from the unit was flat at C$439 million. While there are few signs that interest rates are set to rise, Frank Techar, BMO's head of personal and commercial banking, said the bank expects to slow the margin erosion by lowering its cost of capital. "We are turning our attention to deposit growth. The single biggest opportunity we have to mitigate suppression of margins on this time is to increase our retail deposits growth," he said on a conference call.
Margin pressure also weighed on Canadian Western, Canada's seventh-largest bank by market capitalization, which posted a 20 percent profit gain. But the results disappointed investors who had been looking for a better result.
The bank earned C$43.0 million, or 55 Canadian cents a share, up from a year-earlier C$35.9 million, or 47 Canadian cents a share.
The result, the 98th consecutive quarterly profit for the Edmonton, Alberta-based bank, was driven by a 14 percent rise in loans and an C$8.5 million increase in net gains on securities. But it was held back by interest margins that narrowed to 2.67 percent from 2.79 percent. "Net interest income was
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