Canada’s largest banks are expected to keep less money aside to tackle loans that may potentially go bad when they release their quarterly earnings results this week, and their investors appear to be getting more comfortable with

tariff-related risks

, analysts say.

The

Big Six

opted to take “large performing provisions” in their fiscal second quarter to prepare for a “potential North American trade war scenario,” Canaccord Genuity Corp analyst Matthew Lee said in a note on Aug. 20.

But “three months later, we believe cooler heads may be prevailing,” he said. “With risk models across the industry either improving or remaining unchanged,” he expects the sector’s performing provisions for credit losses (PCLs) to be on the low end of historical averages.

The quarterly results of Canada’s biggest banks, which dominate 90 per cent of the financial market, often act as an economic barometer for the country, analysts say.

Talk about PCLs dominated the first two quarters of this fiscal year after United States President

Donald Trump

announced tariffs on Canadian products.

Analysts expected PCLs to increase ahead of both the first and second quarters. The banks didn’t add much in the way of PCLs in the first quarter, but they did make significant increases in the second. This time around, though, PCLs are expected to decrease.

Paul Holden, an analyst at CIBC World Markets, said investors appear to be getting more comfortable with current risk levels and are looking through near-term challenges into fiscal 2027.

“

We have become increasingly comfortable with the thesis that provisions for credit losses are at or near a plateau and are likely to be lower next year,” he said in a note on Aug. 19.

“The Canadian economy hasn’t exactly been humming in 2025, but the

unemployment rate

and credit metrics we track suggest consumers and businesses overall are holding up well.”

Despite the uncertainty linked to tariffs, Canadian bank stocks continued to climb higher in the third quarter, which covers the period between May 1 and July 31. Since May 30, the Big Six have traded eight per cent higher on average.

With PCLs expected to be lower, the third-quarter results are likely to continue the sector’s good run after being released, analysts say.

That said, the run-up in valuations after the second quarter edges the Big Six close to “overvalued territory” because there are several concerns in the economy that have not eased, John Aiken, an analyst at Jefferies Inc., said.

“Any miss on earnings in the third quarter could have significant negative consequences for valuation multiples, with near-term upside likely constrained, even under a modest beat scenario,” he said in a note on Aug. 13.

  • CIBC hires Mark Mulroney from Scotiabank
  • CIBC rings in executive changes as it gets ready for a new CEO

Bank of Montreal

and

Bank of Nova Scotia

will kickstart the Big Six’s third-quarter earnings season on Tuesday, followed by

Royal Bank of Canada

and

National Bank of Canada

on Wednesday, and

Canadian Imperial Bank of Commerce

and

Toronto-Dominion Bank

on Thursday.

• Email: nkarim@postmedia.com