Bank Loan Loss Provisions Explode: Should We Worry? By Ron Butler

The founder of Butler Mortgage, Ron Butler posted on his X (Twitter) handle that Canadians should not worry about the recent increase of Scotiabank bad loans provision, assuring that other big banks will announce an increase.

Read his full post below: 

“Scotia Bank Provisions for bad loans jumped from over $500M to $1.3B today & in a few days, all the other Canadian Big Banks will announce massive Loan Loss Reserve Increases in their Year End Reports

Should we worry?

Yes & No

This was expected & some of the increased loss assumptions are actually on loans that are currently UP TO DATE: yeah that’s right: the bank is assuming loans will go bad that are totally fine right now just based of the direction of the economy

Which makes sense

EVERY Big 6 Bank is going to announce BIG increases in Loan Loss Provisions if not this quarter then next quarter

This is nothing for the public to worry about: it’s natural & just how bank’s work: if the economy looks like it’s going bad increase they reserve for bad loans

And in some cases the banks are OVER estimating & in 3 or 4 quarters decide they didn’t even need that much money put aside

This reserving is naturally a drag on bank earnings but I am guessing that’s already baked into share prices

This stuff is normal so why worry?

Because these Loan Loss Reserve increases are visceral indicators about the economy 

When the economy booms these Reserves shrink fast today we are watch the opposite process

So don’t worry about the banks but absolutely do see this as confirmation the economy is rolling over”

Read also:

Banks Lay-Offs: Hope Our Money is Safe? 

Canadian Tire to Cut Around 3% of Workforce as Consumers Spending Decreases

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