What’s next for Canadian banks?

The “Big Six” beat earnings expectations ahead of U.S. President Trump’s sweeping tariffs. As the economic uncertainties mount, Sohrab Movahedi, Banks & Asset Managers Equity Research Analyst, BMO Capital Markets, shares his long-term outlook for Canadian banks.

April 2025

Sohrab Movahedi

Banks & Asset Managers Equity Research Analyst, BMO Capital Markets

Read bio

Key takeaways:

The “Big Six” enter this new period of economic uncertainty from a position of strength.
Investors will need to watch the many balls in the air, including the length of tariffs, retaliatory measures, and any accommodations lenders will provide.
There is room for the pendulum to swing further toward the negative side, but Canadian banks stand to benefit over the long term.

All the “Big Six” Canadian banks beat analysts’ earnings expectations in the first quarter of 2025—a feat last achieved 10 quarters ago in Q1 2022. The common theme between then and now is strong trading revenues from the banks’ capital markets and wealth divisions.

When we think of Canadian banks, we often picture well-diversified revenue streams and business models. This image held true in Q1, with market-related businesses acting as a key driver for performance, followed by a reasonable contribution from the personal and commercial banking segments—the bread-and-butter of the group. The business and revenue diversification of the Canadian banks should prove shareholder friendly in the volatile markets of the recent months.

That said, it’s easy to forget that banks are a levered play on the economy, with their performance generally reflecting the underlying economic conditions. As the economic outlook slows, so do the earnings growth prospects for the banks. Remember, the tariff noise had not quite entered centre stage when the first quarter ended in January. Now that the trade war has escalated, however, we see much greater uncertainty for borrowers—for both consumers or businesses alike. To fully understand the current outlook for banks, consider their trajectory during the past 12 months.

Canadian banks emerge from the pit lane

As 2024 drew to a close, we were cautiously optimistic about the Big Six—particularly coming from the difficult operating environment Canadian banks were dealing with in 2023. We often referred to this time as a “pit stop” because the banks slowed down to deal with mechanical issues. During that time, they faced double-digit expense growth in the aftermath of the COVID-19 pandemic measures and the great resignation, and they were getting squeezed on their operating leverage. Concerns mounted about borrowers’ ability to service their debts amid persistent inflation and a relatively sharp increase in interest rates.

In anticipation of credit pressures, the banks quickly built up reserves to cover for potential losses. Around the same time, the Office of the Superintendent of Financial Institutions (OSFI) increased the capital requirements for some banks, and in turn, some financial institutions started issuing shares through a discount on their dividend reinvestment programs, or DRIPs—incentivizing shareholders to take their dividends in shares as opposed to cash. Essentially, the banks had several parts simultaneously malfunctioning: revenues, expenses, provisions, and share accounts working in concert against them.

In the current environment, the only certainty is uncertainty.

Then, of course, the Big Six had taken actions to manage their expenses, such as restructuring mortgages and loans to have extended grace periods, which in turn resulted in loan loss provisions reaching a plateau point. As their capital levels built up, the dividend reinvestment discounts were turned off, and some banks had the excess cash to pursue buybacks.

Q1 was “on time and on schedule” but for the uncertainty brought on by the trade war and the resignation of Prime Minister Trudeau. Now, it’s only reasonable to feel more cautious than optimistic.

Outlook for Canadian banks in 2025

In the current environment, the only certainty is uncertainty. Therefore, it’s hard to factor in the aforementioned forces’ impact on the bank performance. So, cautiousness is warranted. The good news is that the banks are entering this period of economic uncertainty from a position of strength. They have excess capital and liquidity and strong reserves on their balance sheets in anticipation of higher credit costs or potential deterioration in credit quality.

"Big 6" Total Allowances for Loan Reserves ($ MM)

Q1/07 to Q1/25

Source: Company reports; BMO Capital Markets, from Q1 2007 to Q1 2025.

If we see a recessionary-type environment in Canada, we expect some pressures to mount in the form of higher unemployment rates and slower economic growth. The duration of this scenario will dictate how well-positioned the banks are with their financial cushions.

At the same time, we are filling in the blank canvas with what we know—Mark Carney is prime minister until at least April 28, the upcoming election could once again change our political dynamic, and central banks are adapting their rate paths based on the tariff developments. We already have some direction from both the Bank of Canada (BoC) and the U.S. Federal Reserve (Fed). Besides that, however, there are many unknowns and we believe investors will remain somewhat hesitant until they get more data.

Remember, the devil is always in the details.

This information may not come until the start of the third quarter. By then, we’ll know who’s forming the government in Canada and their agenda—and the economy has to be one of their priorities. While we don’t know if we’ll have a majority or minority government, there is some anticipation that there could be a stimulus package to revive the domestic economy.

For now, the big picture is hard to see, as the canvas remains largely blank. We will need a little more time to start filling the rest in. Given these uncertainties, we can look at history as a guide. BMO Economic forecasts about a 70-basis point real GDP growth in 2025. If we look back over the past quarter century, during periods where GDP growth was between zero and one percent range, the forward P/E multiple of the Canadian bank index was near where it is currently trading. So, the banks are not priced for excess panic. If we get indications of a more favourable than unfavourable outlook on the economy, that would provide upward support for those valuation multiples.

The bad news is there is still more risk to the downside. Remember, the devil is always in the details. The delicate balance rests on:

the size and the length of the tariffs,
the sectors impacted,
the severity of retaliatory measures,
the level of government support,
the Bank of Canada’s next move,
the actions companies are taking, and
what sort of accommodations lenders will provide.

Making the case for Canada

Given the uncertainties, the near-term pendulum could swing further to the negative side before it improves. However, depending on investors’ timelines, we would argue that there is a compelling case for Canadian banks in the long term. The next government is anticipated to provide stimulus spending to support the economy, drawing favourable attention and investments. There is also a large spotlight on productivity and the need for the 13 provinces and territories to work together as one. With this, say “revival,” the Big Six stand to benefit beyond the short-term, as they are the grease that oils the wheels of the economy.

For exposure to Canadian banks, consider the BMO Canadian Banks ETF Fund and the BMO Covered Call Canadian Banks ETF Fund.

Please contact your BMO Global Asset Management wholesaler for any additional support and guidance.

Important BMO Global Asset Management Disclaimers:

FOR ADVISOR USE ONLY.

The viewpoints expressed by the Portfolio Manager represents their assessment of the markets at the time of publication. Those views are subject to change without notice at any time without any kind of notice. The information provided herein does not constitute a solicitation of an offer to buy, or an offer to sell securities nor should the information be relied upon as investment advice. Past performance is no guarantee of future results. This communication is intended for informational purposes only.

BMO Global Asset Management is a brand name under which BMO Asset Management Inc. and BMO Investments Inc. operate.

Any statement that necessarily depends on future events may be a forward-looking statement. Forward-looking statements are not guarantees of performance. They involve risks, uncertainties and assumptions. Although such statements are based on assumptions that are believed to be reasonable, there can be no assurance that actual results will not differ materially from expectations. Investors are cautioned not to rely unduly on any forward-looking statements. In connection with any forward-looking statements, investors should carefully consider the areas of risk described in the most recent simplified prospectus.

This article is for information purposes. The information contained herein is not, and should not be construed as, investment, tax or legal advice to any party. Investments should be evaluated relative to the individual’s investment objectives and professional advice should be obtained with respect to any circumstance.

Commissions, management fees and expenses (if applicable) all may be associated with investments in mutual funds. Trailing commissions may be associated with investments in certain series of securities of mutual funds. Please read the fund facts, ETF facts or prospectus of the relevant mutual fund before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. Distributions are not guaranteed and are subject to change and/or elimination.

For a summary of the risks of an investment in the BMO Mutual Funds, please see the specific risks set out in the prospectus. ETF Series of the BMO Mutual Funds trade like stocks, fluctuate in market value and may trade at a discount to their net asset value, which may increase the risk of loss. Distributions are not guaranteed and are subject to change and/or elimination.

BMO Mutual Funds are managed by BMO Investments Inc., which is an investment fund manager and a separate legal entity from Bank of Montreal.

“BMO (M-bar roundel symbol)” is a registered trademark of Bank of Montreal, used under licence.

This article was published on April 25, 2025.

Important BMO Capital Markets Disclosures:

Analyst's Certification

I, Sohrab Movahedi, hereby certify that the views expressed in this report accurately reflect my personal views about the subject securities or issuers. I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in this report.

Analysts who prepared this report are compensated based upon (among other factors) the overall profitability of BMO Capital Markets and their affiliates, which includes the overall profitability of investment banking services. Compensation for research is based on effectiveness in generating new ideas and in communication of ideas to clients, performance of recommendations, accuracy of earnings estimates, and service to clients.

Analysts employed by BMO Nesbitt Burns Inc. and/or BMO Capital Markets Limited are not registered as research analysts with FINRA. These analysts may not be associated persons of BMO Capital Markets Corp. and therefore may not be subject to the FINRA Rule 2241 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account.

Company Specific Disclosures

For Important Disclosures on the stocks discussed in this report, please go to https://research.bmo.com/public/disclosure statements statements.

Distribution of Ratings (March 18, 2025)

Rating category	BMO rating	BMOCM US Universe*	BMOCM US IB Clients**	BMOCM US IB Clients***	BMOCM Universe****	BMOCM IB Clients*****	StarMine Universe-
Buy	Outperform	54.0%	24.0 %	62.6 %	58.8 %	69.4 %	57.7%
Hold	Market Perform	42.9%	16.1 %	33.3 %	39.4 %	29.0 %	37.5%
Sell	underperform	2.9%	21.4 %	3.0%	1.7 %	1.2 %	4.8%

* Reflects rating distribution of all companies covered by BMO Capital Markets Corp. equity research analysts.

** Reflects rating distribution of all companies from which BMO Capital Markets Corp. has received compensation for Investment Banking services as percentage within ratings category.

*** Reflects rating distribution of all companies from which BMO Capital Markets Corp. has received compensation for Investment Banking services as percentage of Investment Banking clients.

**** Reflects rating distribution of all companies covered by BMO Capital Markets equity research analysts.

***** Reflects rating distribution of all companies from which BMO Capital Markets has received compensation for Investment Banking services as percentage of Investment Banking clients.

~ As of April 1, 2019.

Ratings Key (as of October 2016)

We use the following ratings system definitions:

OP = Outperform - Forecast to outperform the analyst’s coverage universe on a total return basis;

Mkt = Market Perform - Forecast to perform roughly in line with the analyst’s coverage universe on a total return basis; Und = Underperform - Forecast to underperform the analyst’s coverage universe on a total return basis;

(S) = Speculative investment;

Spd = Suspended - Coverage and rating suspended until coverage is reinstated; NR = No Rated - No rating at this time; and

R = Restricted - Dissemination of research is currently restricted.

The total return potential, target price and the associated time horizon is 12 months unless otherwise stated in each report. BMO Capital Markets' seven Top 15 lists guide investors to our best ideas according to different objectives (CDN Large Cap, CDN Small Cap, US Large Cap, US Small Cap, Income, CDN Quant, and US Quant have replaced the Top Pick rating).

Prior BMO Capital Markets Rating System

(April 2013 - October 2016)

http://researchglobal.bmocapitalmarkets.com/documents/2013/rating_key_2013_to_2016.pdf

(January 2010 - April 2013)

http://researchglobal.bmocapitalmarkets.com/documents/2013/prior_rating_system.pdf

Other Important Disclosures

For Important Disclosures on the stocks discussed in this report, please go to https://researchglobal0.bmocapitalmarkets.com/public-disclosure/ or write to Editorial Department, BMO Capital Markets, 151 West 42nd St, 33rd Floor, New York, NY 10036 or Editorial Department, BMO Capital Markets, 1 First Canadian Place, Toronto, Ontario, M5X 1H3.

Dissemination of Research

Dissemination of fundamental BMO Capital Markets Equity Research is available via our website https://researchglobal0.bmocapitalmarkets.com/ . Institutional clients may also simultaneously receive our fundamental research via email and/or via services such as Refinitiv, Bloomberg, FactSet, Visible Alpha, and S&P Capital IQ.

BMO Capital Markets issues a variety of research products in addition to fundamental research. Institutional clients may request notification when additional research content is made available on our website. BMO Capital Markets may use proprietary models in the preparation of reports. Material information about such models may be obtained by contacting the research analyst directly. There is no planned frequency of model updates.

The analyst(s) named in this report may discuss trading strategies that reference a catalyst or event that may have a near or long-term impact on the market price of the equity securities discussed. In some cases, the impact may directionally counter the analyst’s published 12-month target price and rating. Any such trading or alternative strategies can be based on differing time horizons, methodologies, or otherwise and are distinct from and do not affect the analysts' fundamental equity rating in the report.

Research coverage of licensed cannabis producers and other cannabis-related companies is made available only to eligible approved North American, Australian, and EU-based BMO Nesbitt Burns Inc., BMO Capital Markets Limited, Bank of Montreal Europe Plc and BMO Capital Markets Corp. clients via email, our website and select third party platforms.

~ Research distribution and approval times are provided on the cover of each report. Times are approximations as system and distribution processes are not exact and can vary based on the sender and recipients’ services. Unless otherwise noted, times are Eastern Standard and when two times are provided, the approval time precedes the distribution time.

For recommendations disseminated during the preceding 12-month period, please visit: https://researchglobal0.bmocapitalmarkets.com/public-disclosure/.

General Disclaimer

"BMO Capital Markets" is a trade name used by BMO Financial Group for the wholesale banking businesses of Bank of Montreal, BMO Bank N.A. (member FDIC), Bank of Montreal Europe p.l.c, and Bank of Montreal (China) Co. Ltd, the institutional broker dealer business of BMO Capital Markets Corp. (Member FINRA and SIPC ) and the agency broker dealer business of Clearpool Execution Services, LLC (Member FINRA and SIPC ) in the U.S., and the institutional broker dealer businesses of BMO Nesbitt Burns Inc. (Member Investment Industry Regulatory Organization of Canada and Member Canadian Investor Protection Fund) in Canada and Asia, Bank of Montreal Europe p.l.c. (authorised and regulated by the Central Bank of Ireland) in Europe and BMO Capital Markets Limited (authorised and regulated by the Financial Conduct Authority) in the UK and Australia. Bank of Montreal or its subsidiaries ("BMO Financial Group") has lending arrangements with, or provide other remunerated services to, many issuers covered by BMO Capital Markets. The opinions, estimates and projections contained in this report are those of BMO Capital Markets as of the date of this report and are subject to change without notice. BMO Capital Markets endeavours to ensure that the contents have been compiled or derived from sources that we believe are reliable and contain information and opinions that are accurate and complete. However, BMO Capital Markets makes no representation or warranty, express or implied, in respect thereof, takes no responsibility for any errors and omissions contained herein and accepts no liability whatsoever for any loss arising from any use of, or reliance on, this report or its contents. Information may be available to BMO Capital Markets or its affiliates that is not reflected in this report. The information in this report is not intended to be used as the primary basis of investment decisions, and because of individual client objectives, should not be construed as advice designed to meet the particular investment needs of any investor. The information in this report is based on general considerations and do not purport to meet the objectives or needs of specific recipients. Nothing herein constitutes any investment, legal, tax or other advice nor is it to be relied on in any investment or decision. If you are in doubt about any of the contents of this document, the reader should obtain independent professional advice. This material is for information purposes only and is not an offer to sell or the solicitation of an offer to buy any security. In furnishing this report, BMO Capital Markets intends to take advantage of the exemption from the principal and agency trading restrictions in Section 206(3) of the Investment Advisers Act of 1940 and Rule 206(3)-1 thereunder. Accordingly, recipients of this report are advised that BMO Capital Markets or its affiliates may act as principal for its own account or agent for another person in connection with the purchase or sale of any security mentioned in or the subject of this report. BMO Capital Markets or its affiliates, officers, directors or employees have a long or short position in many of the securities discussed herein, related securities or in options, futures or other derivative instruments based thereon. The reader should assume that BMO Capital Markets or its affiliates may have a conflict of interest and should not rely solely on this report in evaluating whether or not to buy or sell securities of issuers discussed herein.

Additional Matters

This report is directed only at entities or persons in jurisdictions or countries where access to and use of the information is not contrary to local laws or regulations. Its contents have not been reviewed by any regulatory authority. BMO Capital Markets does not represent that this report may be lawfully distributed or that any financial products may be lawfully offered or dealt with, in compliance with regulatory requirements in other jurisdictions, or pursuant to an exemption available thereunder.

To Australian residents: BMO Capital Markets Limited and Bank of Montreal are exempt from the requirement to hold an Australian financial services licence under the Corporations Act in respect of financial services they provide to wholesale investors (as defined in the Corporations Act). BMO Capital Markets Limited is regulated by the UK Financial Conduct Authority under UK laws, and Bank of Montreal in Hong Kong is regulated by the Hong Kong Monetary Authority and the Securities and Futures Commission, which differ from Australia laws. This document is only intended for wholesale clients (as defined in the Corporations Act 2001), Eligible Counterparties or Professional Clients (as defined in Annex II to MiFID II) and Professional Investors (as defined in the Securities and Futures Ordinance and the Securities and Futures (Professional Investor) Rules under the Securities and Futures Ordinance of Hong Kong).

To Canadian Residents: BMO Nesbitt Burns Inc. furnishes this report to Canadian residents and accepts responsibility for the contents herein subject to the terms set out above. Any Canadian person wishing to effect transactions in any of the securities included in this report should do so through BMO Nesbitt Burns Inc.

The following applies if this research was prepared in whole or in part by Colin Hamilton, Alexander Pearce or Raj Ray:

This research is not prepared subject to Canadian disclosure requirements. This research is prepared by BMO Capital Markets Limited and distributed by BMO Capital Markets Limited or Bank of Montreal Europe Plc and is subject to the regulations of the Financial Conduct Authority (FCA) in the United Kingdom and the Central Bank of Ireland (CBI) in Ireland. FCA and CBI regulations require that a firm providing research disclose its ownership interest in the issuer that is the subject of the research if it and its affiliates own 5% or more of the equity of the issuer. Canadian regulations require that a firm providing research disclose its ownership interest in the issuer that is the subject of the research if it and its affiliates own 1% or more of the equity of the issuer that is the subject of the research. Therefore, each of BMO Capital Markets Limited and Bank of Montreal Europe Plc will disclose its and its affiliates’ ownership interest in the subject issuer only if such ownership exceeds 5% of the equity of the issuer.

To E.U. Residents: In an E.U. Member State this document is issued and distributed by Bank of Montreal Europe plc which is authorised and regulated in Ireland and operates in the E.U. on a passported basis. This document is only intended for Eligible Counterparties or Professional Clients, as defined in Annex II to “Markets in Financial Instruments Directive” 2014/65/EU (“MiFID II”).

To U.S. Residents: BMO Capital Markets Corp. furnishes this report to U.S. residents and accepts responsibility for the contents herein, except to the extent that it refers to securities of Bank of Montreal. Any U.S. person wishing to effect transactions in any security discussed herein should do so through BMO Capital Markets Corp.

To U.K. Residents: In the UK this document is published by BMO Capital Markets Limited which is authorised and regulated by the Financial Conduct Authority. The contents hereof are intended solely for the use of, and may only be issued or passed on to, (I) persons who have professional experience in matters relating to investments falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the "Order") or (II) high net worth entities falling within Article 49(2)(a) to (d) of the Order (all such persons together referred to as "relevant persons"). The contents hereof are not intended for the use of and may not be issued or passed on to retail clients.

To Hong Kong Residents: In Hong Kong, this report is published and distributed by Bank of Montreal. Bank of Montreal (incorporated in Canada with limited liability) is an authorized institution under the Banking Ordinance and a registered institution with the Securities and Futures Commission (CE No. AAK809) to carry on Type 1 (dealing in securities) and Type 4 (advising in securities) regulated activities under the Securities and Futures Ordinance (Cap 571 of the Laws of Hong Kong). This report has not been reviewed or approved by any regulatory authority in Hong Kong. Accordingly, this report must not be issued, circulated or distributed in Hong Kong other than (a) to professional investors as defined in the Securities and Futures Ordinance and the Securities and Futures (Professional Investor) Rules under the Securities and Futures Ordinance of Hong Kong, or (b) in circumstances which do not result in or constitute an offer to the public in Hong Kong.

To Korean Residents: This report has been provided to you without charge for your convenience only. All information contained in this report is factual information and does not reflect any opinion or judgement of BMO Capital Markets. The information contained in this report should not be construed as offer, marketing, solicitation or investment advice with respect to financial investment products in this report.

To Japan Residents: This report has not been reviewed by any regulatory authority in Japan. This report is provided for information purposes only and it should not be construed as an offer to sell, a solicitation to buy, or a recommendation for any security, or as an offer to provide investment management or advisory or other services in Japan. Securities may not be offered or sold in Japan by means of this report or any other document other than to Qualified Financial Institutions within the meaning of item (i) of Article 17-3 of the Government Ordinance to enforce the Financial Instruments and Exchange Act (Kinyu Shohin Torihiki Ho Sekou Rei). Unless specified otherwise, the securities that may be offered to you are not and will not be registered in Japan pursuant to the Financial Instruments and Exchange Acts.

To Taiwanese Residents: This report is not intended to constitute investment advice nor a public offer for any investment products to investors in Taiwan. This report should only be accessed by investors in Taiwan that are qualified to invest in investment products pursuant to relevant Taiwanese laws and regulations, and subject to sales restrictions as set forth in the relevant Taiwanese laws and regulations. BMO Capital Markets has not and will not secure the required licenses in Taiwan for the offer of securities and investment services. Any offer of securities has not been and will not be registered or filed with or approved by the Financial Commission of Taiwan and/or other regulatory authority pursuant to relevant securities laws and regulations of Taiwan, and may not be issued, offered or sold within Taiwan through a public offering or in circumstances which constitute an offer that requires a registration, filing or approval of the Financial Supervisory Commission of Taiwan and/or other regulatory authority in Taiwan under relevant securities laws and regulations of Taiwan. No person or entity in Taiwan has been authorized to offer or sell the securities in Taiwan.

To Singapore Residents: This report is intended for general circulation and does not and is not intended to constitute the provision of financial advisory services, whether directly or indirectly, to persons in Singapore. You should seek advice from a financial adviser regarding the suitability of the investment products, taking into account your specific investment objectives, financial situation or particular needs before you make a commitment to purchase the investment product. This report has not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, it should not be circulated or distributed, nor may the securities described herein be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to persons in Singapore other than (a) to an institutional investor or a relevant person as defined in and pursuant to and in accordance with the conditions of the relevant provisions of the Securities and Futures Act of Singapore or (b) otherwise pursuant to and in accordance with the conditions of, any other applicable provision of the SFA.

To Israeli residents: BMO Capital Markets is not licensed under the Israeli Law for the Regulation of Investment Advice, Investment Marketing and Portfolio Management of 1995 (the "Advice Law") nor does it carry insurance as required thereunder. This document is to be distributed solely to persons that are qualified clients (as defined under the Advice Law) and qualified investors under the Israeli Securities Law of 1968. This document represents the analysis of the analyst but there is no assurance that any assumption or estimation will materialize.

These documents are provided to you on the express understanding that they must be held in complete confidence and not republished, retransmitted, distributed, disclosed, or otherwise made available, in whole or in part, directly or indirectly, in hard or soft copy, through any means, to any person, except with the prior written consent of BMO Capital Markets. Furthermore, you shall not use (nor enable or procure any third party to use) these materials, in whole or in part, for the development of any software program, model, algorithm, or generative artificial intelligence (Al) tool or any other derivative content, including, but not limited to, training or using these materials in connection with the development or operation of a machine learning or artificial intelligence (Al) system (including any use of these documents for training, fine tuning, or grounding the machine learning or Al system or as part of retrieval-augmented generation).

Click here for data vendor disclosures when referenced within a BMO Capital Markets research document.

For assistance with accessible formats of online content, please contact research@bmo.com.