Canada’s Big Six banks hoard reserves, lending slows to a crawl, loan-loss provisions surge up to 79%

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Canada’s Big Six banks are tightening their grip on loan-loss reserves, bracing for economic uncertainty as Trump’s trade policies send shockwaves through financial markets. The latest reports confirm that four of the six major banks have set aside over C$1 billion to shield against potential loan defaults, a move that signals deep concerns about the lending environment.

The numbers tell the story. Provision for credit losses—a key metric that tracks souring loans—has surged between 14.5% and 79% across the major banks. Bank of Montreal (BMO) alone saw a 49% jump, while TD Bank’s provisions climbed 22%. These figures reflect growing fears that businesses and consumers will struggle to repay debts as trade uncertainty and high interest rates squeeze the economy.

Lending activity is grinding to a halt. The latest earnings reports show that banks are pulling back on commercial lending, particularly in sectors vulnerable to tariff-related disruptions. Analysts warn that loan growth is slowing, with businesses delaying expansion plans and households holding off on major purchases. The uncertainty surrounding Trump’s tariff policies has made forecasting nearly impossible, forcing banks to adopt a defensive stance.

The financial sector is feeling the pressure. Investment banking activity has weakened, and market volatility is driving cautious behavior among institutional investors. The Toronto Stock Exchange has seen declines, reflecting broader concerns about the economic outlook. Analysts expect banks to increase reserves further in the coming months, preparing for potential downturns.

Sources

https://finance.yahoo.com/news/canadian-banks-brace-trade-uncertainty-100747325.html

https://globalnews.ca/news/11032640/canada-big-banks-build-reserves-trump-tariffs/

https://ca.finance.yahoo.com/news/canadian-banks-expected-build-reserves-111834266.html