Canadian Banks Post Strong Fiscal 2025: TD & National Bank Lead, But Risks Loom

The Canadian banking sector enters 2026 in a position of relative strength. National Bank (NA), for instance, posted ~35% total return in 2025, raised its dividend twice, and holds a CET1 ratio of 13.8%, backed by recent acquisitions (Canadian Western Bank; Laurentian’s retail & SME portfolios) that enhance its scale outside Quebec and Western Canada exposure. These acquisitions are driving both commercial lending expansion and broadened geographic and business diversification.

TD Bank delivered robust Q4 fiscal 2025 adjusted earnings – CAD 3.9B, or CAD 2.18 EPS – beating expectations across revenue and capital markets; its CET1 of 14.7% remains well above regulatory minimums. The bank is focused on operational leverage through cost program savings (~CAD 750M annual run-rate), targeting 6-8% EPS growth, and maintaining a ROE of 13-15% into 2026.

Scotiabank reported adjusted Q4 profit of C$2.56B (C$1.93 EPS), exceeding forecasts, with net interest income rising alongside wealth and capital markets gains. However, increased restructuring costs (~C$373M), elevated PCLs (C$1.11B), and macro risks—housing market weakness, household debt—cast a cautious shadow.

Valuation and risk differentiation among the Big Six is increasingly relevant. Royal Bank (RY) remains the “safest” choice: diversified operations, steady income, premium valuation. BMO appears attractively discounted trading below peers, with strong dividend yield (~3.7%) and improving U.S. business performance. CIBC offers high yield and discount but is more exposed to domestic real-estate and credit risk. Buy vs hold decisions will depend heavily on risk tolerance.

Interest-rate and regulatory environments matter greatly. OSFI’s decision to hold the Domestic Stability Buffer at 3.5% shows confidence in the sector’s resilience. However, divergence in forecasts from major banks—Scotiabank predicting higher policy rates in late 2026, others expecting easing—could affect net interest margins, fixed mortgage rates, and loan growth.

Open questions for investors:

• How effectively can NA integrate its new acquisitions without diluting asset‐quality or incurring excess cost overruns?
• Will TD’s cost savings and AML remediation deliver full benefit, or will regulatory and compliance costs persist as drag?
• To what extent will real-estate softness advance into loan losses, especially for banks with large exposure (CIBC, BMO)?
• How will policy rate paths affect margins and loan demand—in particular, with divergent forecasts among banks?