Record quarterly results posted by some of

Canada’s biggest banks

this week suggest the country’s economy has been resilient in the face of U.S. President

Donald Trump’s

trade war, but with Canada yet to strike a trade deal with the United States the mood in the sector remains tense.

Five of the Big Six lenders comfortably beat analysts’ expectations for the third quarter, with lenders such as the

Royal Bank of Canada

and the

Toronto-Dominion Bank

posting record profits, as revenues rose and less money was set aside to tackle loans that may potentially go bad. And yet, executives remained guarded in their outlooks.

While there were talks of how the “uncertainty meter” had gone down compared to the start of the year and how spending on non-essential items had improved, the banks’ CEOs repeatedly pointed to the importance of the

Canada-United States-Mexico Agreement (CUSMA)

, which has been shielding the economy from the worst of Trump’s tariffs but will likely be up for renegotiation.

“Should current CUSMA-compliant goods largely maintain their qualified exemption to tariffs, Canada’s effective tariff rate should remain low and the economy should remain resilient,” RBC’s chief executive Dave McKay said on Wednesday.

But lingering trade uncertainty could have negative ramifications of its own, the head of Canada’s largest bank said, citing the potential for “declining consumer confidence, lower corporate profit margins,

rising inflation

and softening labour markets across both the U.S. and Canada, with uncertain implications for monetary policy and capital flow.”

According to

Bank of Montreal’

s chief executive Darryl White, the Canadian economy is in the “middle innings,” weaving through a modest growth environment.

“The economy is sort of moving at a pace that you’d expect,” he said on Tuesday. “It’s neither robust, nor does it feel recessionary in Canada, and you’ve got some segments that will naturally slow down when that happens.”

One reason why the banks managed to perform well amid the uncertainty was because borrowers started to front-run their needs, said Maria-Gabriella Khoury, Fitch’s senior director of North American banks.

Khoury said many sought to line up credit now while the economic situation is relatively stable, rather than waiting for a tougher business environment because of the tariffs.

“We saw very healthy volumes in personal and commercial, which in the previous quarter, they weren’t expecting because the consumer sentiment was so low. But it seems like there was a lot of volume because of the front running,” said Khoury.

Overall, Khoury said that the business outlook had improved, but that the trend might just be for the quarter, since Canada is yet to complete its tariff-related negotiations. “If they turn sour, we have to be ready,” she said.

With the Canadian economy “not doing great,” the banks’ loan growth numbers — an important means for lenders to make money — have been restricted to low single digits, said Shalabh Garg, an analyst at Veritas Investment Research.

But with deposits growing faster than loans, lower funding costs have still led to margin expansion, he said.

The banks also reported lower provisions for credit losses, or the money kept aside to tackle potentially bad loans, in the third quarter compared to the previous three months. This was a “great sign” in terms of resiliency in the economy, said Garg.

“Impaired loan losses were lower…. I think we can pass this back to how the unemployment rate has been broadly stable. That’s basically what’s driving this improved performance,” he said.

  • RBC tops analysts’ expectations, keeps aside more money for loans that may go bad
  • Bank execs hope for economic ‘green shoots’ after earnings top expectations

TD’s chief executive Raymond Chun echoed a similar sentiment on Thursday when he said that Canadian and U.S. economies have been resilient despite the uncertainty created by the tariffs.

Still, these are early days, he said. “It will likely be a long road before the full impact of tariffs is well understood,” he said. “This is a time for bold, decisive leadership that unlocks Canada’s economic potential and strengthens our productivity and resilience.”

• Email: nkarim@postmedia.com