WRAPUP 2 – Canadian CIBC, TD earnings beat estimates, but diverge in loan growth rates

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(Adds stock prices, comment from CIBC analyst call, context)

Nikolay Saminater

TORONTO, Aug. 26 (Reuters) – Toronto-Dominion Bank (TD) and Canadian Imperial Bank of Commerce (CIBC) closed third-quarter earnings for Canadian lenders with better-than-expected earnings on Thursday, mainly thanks to the release of reserves to cover bad loans but strong growth in CIBC loans a year earlier eluded TD.

CIBC loan balances rose 8% as of July 31, while TD loan balances fell 0.5% year-over-year as the latter’s contraction in US lending offset strong credit growth in Canada. This boosted TD’s revenue, while CIBC rose 7%.

“In the US, the assistance programs for consumers and businesses have been significant,” said Riaz Ahmed, chief financial officer of TD, Canada’s second-largest lender by market value, in an interview. “This accumulation of liquidity among clients and business owners was quite significant and led to an anemic increase in loans.”

Credit growth in the US is expected to accelerate as liquidity shrinks, he said.

All of Canada’s largest banks this week posted better-than-expected earnings on improved loan loss provisions (PCL). Most also showed signs of a credit recovery, especially for Canadian businesses, even as mortgage growth continued, a force that helped to eclipse continued pressure on profitability.

The Bank of Nova Scotia, however, faced difficulties as growth in its domestic lending was overshadowed by a downturn in its significant Latin American business, although analysts were optimistic about positive developments in the quarters ahead.

On Thursday, TD joined the disappointing contingent.

TD shares fell 0.9% to C $ 84.88 in Toronto morning trading, while CIBC rallied 0.5% to C $ 152.16, approaching a record close. The Toronto stock index fell 0.1%.

Royal Bank of Canada, Bank of Montreal and National Bank of Canada also set records this week.

“TD loan growth remains an issue that does not appear to be solely the result of the () churn” of the US enterprise loan forgiveness program fueled by the pandemic, Barclays analyst John Aiken said in a memo.

Some banks warn that keeping deposits high could slow credit growth in some areas. At CIBC, credit utilization rates, while improving, remain weak, and while credit card purchases are on the rise, outstanding balances are expected to accumulate much more slowly, executives said on a call from analysts.

Separately, CIBC said it aims to achieve zero greenhouse gas emissions in its operating and financial activities by 2050 and will set interim targets to achieve this starting next year.

Both TD and CIBC benefited from strong growth in wealth management income over the prior year, which propelled TD Canada Retail’s non-interest income by 13% and CIBC’s growth by 25%.

Details of the income of both banks: (Reporting by Nikolay Saminater; Additional reporting by Niket Nishant and Nur Zainab Hussain; editing by Chizu Nomiyama and Jonathan Oatis)

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