With rising profits across the board, Canada’s biggest banks appear to be emerging from 2025 relatively unscathed by United States President

Donald Trump

’s

trade war

.

But concerns that uncertainty in the economy is having a disproportionate effect on different groups was a talking point last week when the

Big Six

released their earnings results for the fourth quarter, which ended on Oct. 31.

The head of Canada’s biggest bank, RBC chief executive

Dave McKay

, said on a conference call with analysts on Wednesday that polarization in the so-called “K-shaped economy” was increasing, with more affluent consumers benefiting from their ability to invest in growing markets, while less affluent ones struggle with affordability.

Though McKay didn’t say so explicitly, the banks’ expectations-beating earnings seemed to be a reflection of those differences.

Their profits were largely driven by business segments at the more affluent ends of the economy, such as capital markets, which cover large capital raises and trading activity, as well as wealth management services, which cater to those with significant assets.

Bank of Nova Scotia

‘s global wealth management and global banking and markets segments, for example, grew by 17 per cent and 50 per cent, respectively, when compared to the same quarter last year, due to strong revenue from higher mutual fund fees, brokerage revenues, capital markets and business banking.

Bank of Montreal

’s adjusted net income in its wealth management and capital markets segments increased by 27 per cent and 97 per cent, while the

Canadian Imperial Bank of Commerce

increased its capital markets net income by 58 per cent year over year in the quarter.

Capital markets activity means more large corporations were raising money, perhaps for projects to expand the economy, and that’s a good thing, said Jefferies Inc. analyst John Aiken. But a cautionary note for the banks is that these revenue lines can be much more volatile, he said.

“The market giveth, the market taketh away. Just because that happened in the fourth quarter doesn’t necessarily mean it’s going to repeat in the next,” said Aiken. “But all commentary … still looks very solid for the first part of 2026.”

At the same time though, domestic retail banking operations, which deal with services provided to individuals as opposed to large corporations, didn’t perform as well as expected, with personal credit coming in a little weaker than the market was looking for, he said.

“Anecdotally, what the economists are writing and talking about are that the negative parts of the economy are disproportionately hurting lower income individuals,” said Aiken.

Shalabh Garg, an analyst at Veritas Investment Research, said the bank earnings show that the economy isn’t in great shape but is “holding well.”

One of the factors he based his comment on is impaired provisions for credit losses or the amount of money that banks have kept aside for loans that they aren’t likely to get back. This figure has been relatively constant. If the economy was doing well, it would have declined, he said.

Overall, though, the performance of the banks and resilience of the economy was more positive than analysts had expected.

“The overall resilience was astounding,” said Aiken. “If you had asked me this point last year, I would never have believed that the economies would be able to withstand everything that had been thrown against them and still come out reasonably unscathed.”

He added that one could argue that if “trade chaos” hadn’t ensued, the economy would have done much better.

Garg echoed a similar sentiment and said that few people had a 20-per-cent-plus increase in the TSX and the S&P 500 on their “bingo cards” for the year. “It’s a complete surprise what happened with the equity markets,” he said. “A lot of it is linked to the AI boom and the banks did well in terms of capitalizing.”

While 2025 was a good year for the banks, he wasn’t certain that “huge tailwinds” from things such as margin expansion — the difference between what a bank earns through its loans and what it pays for deposits — would remain in place in 2026.

How the economy performs in the second half of next year will also depend on the real estate and job markets and what happens with regards to the Canada-United States-Mexico agreement, a trade deal that has shielded Canada from the worst of Trump’s

tariffs

, said Garg.

Fitch Ratings Inc. said in a statement Thursday that it was going to maintain a “deteriorating” sector outlook for Canadian banks in 2026, as it expects GDP growth to be muted and because ongoing geopolitical trade frictions pose downside risks.

“A material increase in tariffs would elevate asset quality risks, particularly for corporates with significant U.S. export exposure,”  Fitch said. “To date, asset quality pressures remain manageable, as roughly 90 per cent of exports fall under (

CUSMA

) and are not directly affected by current trade actions,” it said.

Aiken said that the confidence expressed by the banks’ management teams about 2026 was “significantly greater than ours” and a positive takeaway. Despite “anemic” growth in lending, he saw net margin expansion as a bright spot and that is likely to continue.

“That’s the lower

interest rates

benefiting them on the funding,” he said. “Interest rates are still higher than where they were five years ago. So, as residential mortgages are being repriced, they’re being repriced at higher levels, and that’s given them better spread.”

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