Canada’s major banks are bracing for less financial pain than expected, with analysts saying they’ve cut back billions in loan-loss provisions as US tariffs hit softer than feared.The “Big Six” are expected to set aside $5.22 billion this quarter to cover potential bad loans — down from $6.37 billion last quarter, according to LSEG data.Reuters reported that banks had been stockpiling reserves in case a trade fight with Washington sparked a wave of defaults on mortgages, business loans, and credit cards. But so far, the sky hasn’t fallen.In June, nearly 92% of Canadian exports still moved south of the border tariff-free under NAFTA exemptions, US Census Bureau numbers show. On Friday, Prime Minister Mark Carney quietly rolled back some of Ottawa’s own retaliatory tariffs.“Three months later, we believe cooler heads may be prevailing,” said Canaccord Genuity analyst Matthew Lee, pointing to the managed tariff skirmish among Canada, the US and Mexico..Bank of Canada reveals cash still popular.Even with the improved outlook, demand for new loans is still soft.Analysts expect loan growth to stay sluggish while banks lean more heavily on fee income, wealth management, and capital markets to keep earnings steady.The third-quarter earnings season kicks off Tuesday with Bank of Montreal and Bank of Nova Scotia. Net interest income — the spread between what banks earn on loans and pay on deposits — is expected to jump anywhere from 9 to 57%.With little room to expand at home, Canadian banks continue to push south into the US market and bulk up their wealth management arms.In the meantime, they’ve been buying back stock — roughly $4 billion worth in the last quarter alone — to keep shareholders happy.“Given the robust capital positions, we look forward to commentary on capital deployment plans,” said Veritas analyst Shalabh Garg, noting the banks are sitting on strong balance sheets with limited domestic opportunities.For now, the banks look poised to weather the tariff storm — but whether Canadians see any benefit is another question.
