Royal Bank of Canada (TSE:RY), and the country’s other big lenders, are building up their credit loss provisions as uncertainty surrounding U.S. tariffs grows.
The lenders, which also include Toronto-Dominion Bank (TSE:TD) and Bank of Nova Scotia (TSE:BNS), are reportedly putting aside more money to cover potentially bad loans as the U.S. continues to threaten to impose tariffs of up to 25% on most Canadian imports.
The reserve build-up also comes as unemployment remains elevated across Canada and small and medium-sized businesses struggle financially following the Covid-19 pandemic. Additionally, about 60% of Canadians are renewing their mortgages this year and expected to incur higher monthly payments, which could also lead to higher loan defaults for the banks.
Impact on Earnings
Bank analysts are warning that the increased money set aside to cover loans that sour could negatively impact the lender’s first-quarter earnings. Canada’s banks are scheduled to begin reporting their fourth-quarter 2024 financial results later this week, starting with Bank of Montreal (TSE:BMO) on Feb. 25.
For the current first quarter, loan loss provisions are expected to rise as much as 80% for some of Canada’s top lenders. Analysts are forecasting that loan provisions will increase about 70% to $5.6 billion at Canada’s big six banks this year and expect earnings to decrease about 10% in the year’s first quarter.
Royal Bank of Canada, the largest lender in the country, has seen its stock slump about 2% so far in 2025.
Is Royal Bank Stock a Buy?
Royal Bank of Canada’s stock currently has a consensus Strong Buy rating among 11 Wall Street analysts. That rating is based on nine Buy and two Hold recommendations assigned in the past three months. The average RY price target of C$196.99 (US$138.42) implies 16% upside from current levels.
