Canadian Banks Surge in Q4: Wealth & Markets Lead, Risks Tighten Margins

Canadian banks enter Q4 2025 on a positive but cautious footing. Boosted by strong activity in wealth management and capital markets, along with rising net interest income in many cases, consensus forecasts predict year-over-year revenue growth and significantly stronger net income for most institutions. However, the sector’s elevated valuations are placing increased pressure on performance: any shortfall in earnings, especially relative to conservative expectations, could lead to sharp revaluations. Key differences across banks—such as asset growth, balance sheet exposure, and credit dynamics—will be differentiated drivers of both upside and downside.

Revenue & Profit Catalysts: Visible Alpha projects robust revenue growth among several banks—National Bank +19.4%, RBC +11.2%, Scotiabank +11%, CIBC +9.5%; BMO expects weaker revenue growth owing to U.S. challenges. National Bank and BMO are heavily exposed to capital markets and wealth management, which are expected to provide outsized contributions. Net income is forecast to rise by double‐digits in many cases (e.g. BMO +50.4%, RBC +14.5%, TD +13.5%, Scotiabank +16.4%), though Laurentian Bank is expected to decline.

Credit & Margin Considerations: Provisions for loan losses remain a key variable. Most banks are projected to see increases in provisions (5-32%) except BMO, which is likely to post a ~46% drop. Net interest margins are under pressure but are expected to stabilize, with average NIM across banks at ~1.77%—flat from Q3. Loan growth is mixed; National Bank leads with ~22% YOY growth (partly from acquisition), while TD may see flat or slightly negative loan growth.

Valuation Metrics & Market Sentiment: The Big Six are trading at ~12.9× forward earnings, significantly above their decade average. Jefferies has downgraded RBC and TD to Hold, noting elevated valuation and thin revenue growth in traditional banking segments. Analysts suggest visibility on earnings and valuation expansion is more likely in the latter half of 2026, with potential for entry points should credit trends worsen.

Risks & Strategic Implications: Rising consumer stress—in regions like Ontario and among mortgage renewals—may drive elevated losses. U.S.-Canada trade uncertainties could weigh, particularly for banks with cross-border operations. Exposure to private credit and non-bank financial institutions presents opacity risk. Moreover, expectations for the cost of credit and capital regulation (e.g., CET1 thresholds) will influence investor sentiment and bank behavior. Banks with diversified revenue (wealth, capital markets) stand to outperform; those reliant on domestic retail or U.S. exposure may lag.