RY to NA: Are big bank stocks a buy for long-term?

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 RY to NA: Are big bank stocks a buy for long-term?
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Highlights

  • The TSX financial index slipped by almost 10 per cent year-to-date
  • Toronto-Dominion reported C$ 10.92 billion of total revenues in Q3 2022
  • National Bank said its income before provision for credit losses was C$ 1.1 billion in Q3 2022

Canada’s Big banks, including Royal Bank (TSX: RY), Toronto-Dominion (TSX: TD), Scotiabank (TSX: BNS), Canadian Imperial (TSX: CM) and National Bank (TSX: NA), are popular among value investors considering their role in maintaining nation’s economic health. From an investment point of view, these Big Six bank stocks are characterized as dividend aristocrats and often gain traction among Canadian investors.

Macroeconomic factors, including mounting inflation rate and recession concerns stemming from tight monetary policies, seem to pressure the banking sector as the TSX financial index slipped by almost 10 per cent year-to-date (YTD). However, long-term investors could still consider these big bank stocks as they have robust business operations and large-market capitalization to back them up through challenging times.

This week, Canada’s major banks, barring Bank of Montreal (TSX: BMO), recently announced their financial results for the third quarter of fiscal 2022. This article by Kalkine Media® will talk about the financial performance of these banks in detail. So, let us dive in.

1.     Royal Bank of Canada (TSX: RY)

Royal Bank said that its consolidated results in Q3 2022 reflect a provision of C$ 340 million, mainly taken on loans considering unfavourable changes in macroeconomics expectations, in contrast to releases of provisions on loans worth C$ 540 million in the third quarter last year.

By market capitalization (C$ 171.45 billion), Canada's largest bank stated that its net profit declined by 17 per cent year-over-year (YoY) to C$ 3.57 billion in the latest quarter. Royal Bank posted a return on equity (ROE) of 14.6 per cent in the latest quarter, reflecting a decrease of 500 basis points from Q3 2021. The CET1 ratio dropped by 50 basis points to 13.1 per cent in the latest quarter compared to the same quarter a year ago.

Meanwhile, on a year-to-date (YTD) basis, Royal Bank’s net profit amounted to C$ 11.92 billion at the end of Q3 2022, representing a decline of two per cent from the previous year. Royal Bank also announced to pay a quarterly dividend of C$ 1.28 per share.

2.     Toronto-Dominion Bank (TSX: TD)

In a statement on August 25, Toronto-Dominion said that continued business momentum, enhanced customer activity and deposit risk franchise helped the bank to perform during uncertain market conditions. The C$ 154 billion market cap bank reported C$ 10.92 billion of total revenues in the latest quarter, relatively up from C$ 10.71 billion in Q3 2021. The financial company posted C$ 351 million in provision for credit losses in the third quarter this year compared to the recovery of credit losses worth C$ 37 million in the prior year’s third quarter.

Toronto-Dominion saw its net profit reduce to C$ 3.21 billion in the latest quarter from C$ 3.54 billion in the same period a year ago. Besides, the banking solutions provider said to deliver 89 cents as a quarterly dividend on or after October 31.

3.     Bank of Nova Scotia (TSX: BNS)

Bank of Nova Scotia saw its net interest income surge to C$ 4.67 billion in Q3 2022 from C$ 4.21 billion in Q3 2021. However, the non-interest income reduced to C$ 3.12 billion in Q3 2022 from C$ 3.54 million in Q3 2021.

Bank of Nova Scotia posted an increased provision for credit losses of C$ 412 million in Q3 2022 relative to C$ 380 million in the third quarter last year. Scotiabank also said to pay a quarterly dividend of C$ 1.03 on October 27.

RY to NA: Are Big bank stocks a buy for long-term? ©Kalkine Media®; ©Garis Studio via Canva.com

4.     Canadian Imperial Bank of Commerce (TSX: CIBC)

Canadian Imperial President and CEO Victor G. Dodig said on August 25 that the lender continued to deliver strong growth across its business by executing client-focused strategies and leveraging strategic investments.

Canadian Imperial, shortly termed CIBC, reported net earnings of C$ 1.66 billion in Q3 2022, down from C$ 1.73 million recorded in the third quarter of the last year. CIBC posted a CET1 ratio of 11.8 per cent in the latest quarter, up from 11.7 per cent in the third quarter a year ago. Now coming to credit quality, the C$ 59 billion market cap lender reported C$ 243 million in provision for credit losses in the third quarter this year, significantly high from a provision reversal of C$ 99 million posted in the same quarter of the previous year. Also, CIBC declared a quarterly dividend of 83 cents to be paid on October 28.

5.     National Bank of Canada (TSX: NA)

In announcing its Q3 2022 results, National Bank revealed that solid performance across its business segments was partially offset by a high provision for credit losses, representing a challenging macroeconomic environment. However, the C$ 30-billion market lender will continue its dividend practice by announcing a quarterly dividend of 92 cents, scheduled for November 1.

National Bank said its net income decreased by two per cent to C$ 826 million in the third quarter of this fiscal year compared to C$ 839 million in the quarter ended July 21, 2021. However, the lender said that its income before provision for credit losses amounted to C$ 1.1 billion in Q3 2022, a seven per cent growth from C$ 1.03 billion in Q3 2021.

Bottom line

These big bank stocks could be suitable for investors with a low-risk tolerance, particularly from a long-term perspective. These financial stocks could offer stability even during tough economic conditions. However, exercising due diligence is important before investing.

Please note, the above content constitutes a very preliminary observation based on the industry, and is of limited scope without any in-depth fundamental valuation or technical analysis. Any interest in stocks or sectors should be thoroughly evaluated taking into consideration the associated risks.

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