Bank of Montreal (BMO.TO) said bad loans to oil and gas companies more than doubled in the latest quarter, and it set aside more funds to cover losses, setting the scene for expected increases in provisions by other Canadian lenders.

Canada's fourth-biggest bank said on Wednesday that gross impaired loans to the oil and gas sector rose to $410 million from $162 million during the second quarter ended on April 30, while provisions for credit losses increased to $201 million from $161 million.

Canada's other major banks are also expected to set aside more funds to cover bad loans when they report quarterly results over the coming week.

Although oil prices have improved since February, analysts expect the financial reports to show the impact of tighter credit lines to energy companies to reflect lower oil prices, a trend that could lead some borrowers to default.

National Bank analyst Peter Routledge said BMO's increased provision was not a surprise.

"We expected that across the sector," he said. "What we saw in terms of new provisions for loan losses in the oil and gas portfolio were pretty consistent with that."

BMO shares were up 0.3 per cent at C$83.46 in early Toronto Stock Exchange trading.

Energy sector loans accounted for 2 per cent of BMO's total credit portfolio, and the oil-producing province of Alberta makes up about 6 per cent of its loan book.

Barclays analyst John Aiken said BMO's provision ofC$201 million was lower than his forecast of $260 million and the consensus estimate of $248 million.

BMO said net income for the second quarter fell 3 per cent to $973 million, or $1.45 per share, from a year earlier.

Excluding a $132 million charge for cost cuts and the introduction of new technology, earnings were $1.73 a share. The figure included a write-down of 12 cents on an equity investment. Analysts on average had expected $1.75 a share, according to Thomson Reuters I/B/E/S.

BMO raised its quarterly dividend by 2 cents to 86 Canadian.