On the positive side are the signs of easing inflation and job reports that keep surprising to the upside; on the other side is the growing amount of money banks are having to set aside for the expected slowdown ahead.
"A more challenging capital and regulatory environment for banks ... is something that we are very concerned about." With the economy looking strong despite a wave of interest rate hikes, concerns the Bank of Canada won't be able to lower rates any time soon could add to the risks. The regulator could also raise the rate further, leading all of Canada's big banks to target a capital ratio of 12 per cent, said Grauman, which is putting strains on the amount of capital available for other uses such as share buybacks.
"With the possibility of a recession still likely on the horizon, we anticipate the credit normalization will continue, underscored by higher non-performing loan provisions," said Barclays analyst John Aiken in a note. The positive indicators, and easing fears, have helped push up shares of the Big Six banks by 10.7 per cent as of Feb. 16, compared with 7.2 per cent for the TSX Composite Index as a whole, noted Canaccord Genuity analyst Scott Chan.
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