Canada’s largest banks have been projected to have lower than peak average earnings-per-share (EPS) in 2023 and one analyst is calling for expectations to fall even further. 
‘While consensus estimates appear to be broadly aligned with banks’ guidance, we think there is a high probability that numbers will have to come down further,” Paul Holden, an analyst at CIBC Capital Markets, wrote in a note to clients on Wednesday. 
The average consensus on Bay Street for Canadian banks' EPS this is year is 2.2 per cent. CIBC has a lower EPS growth projection of 1.5 per cent. 
"The banks ‘performance this year will be dictated by loan loss provisions,’" Holden stated. 
While the Big Six have forecast an average year for credit provisions, Holden believes this is unlikely given the economic landscape. 
"We find that hard to swallow given the significant move in borrowing rates, inflationary pressures and an economic slowdown," he wrote. 
He noted that TD Bank and Scotiabank are the most sensitive to a downgrade in loan loss forecasts. 
In terms of loan growth, Holden forecast residential mortgage growth to remain in line with the banks' guidance, but anticipated commercial loan growth projections to come down. He noted estimates for the Bank of Montreal and Scotiabank to be the most sensitive to a slowdown. 
The other point of possible distress this year for the Canadian banks could be reflected in net interest margin (NIM) sensitivities, he said. 
NIM is used by the banks to measure the difference between income on interest generated by a bank versus the amount of interest it pays out to its lenders in accordance to assets. 
Holden challenged the assumption that banks benefit from higher short-term rates. 
While he does agree that the banks profit from higher interest rates over time, he cautioned that the pace at which this is reflected in EPS differs in relation to each bank's asset duration. 
Holden said there was a notable divergence in NIM among the Canadian banks over the last two quarters and expects this to continue in 2023. 
He explained that every two basis-point change in NIM has a material impact on EPS by 1.5 per cent. The banks most susceptible to this impact are Scotiabank, TD Bank and Bank of Montreal, he said. 
Overall, CIBC has lowered its estimates for the Big Six in 2023 relative to consensus. 
"We have taken a more conservative stance on forward assumptions,” he noted.