Canada’s major banks are kicking off earnings season on solid footing, with profits supported by strength in wealth management and capital markets. Investors are watching credit trends, mortgage renewals and elevated valuations as the sector moves through a key transition period.
BNN Bloomberg spoke with Benjamin Klein, senior portfolio manager at Baskin Wealth Management, who said Canadian banking remains stable with strong margins and cost controls, but future performance will depend heavily on equity markets and how mortgage renewals unfold through 2026.
Key Takeaways
- Canadian bank earnings remain closely linked to equity market performance, with wealth management and capital markets driving much of the recent profit growth.
- A modest uptick in credit card and auto loan delinquencies is emerging, though major banks’ focus on prime borrowers limits near-term mortgage risk.
- 2026 marks the final year of the five-year mortgage renewal cycle from 2021, which could support net interest margins as higher rates reset.
- Bank valuations have risen alongside strong share performance, with the sector trading at roughly two times book value.
- While tariff and trade uncertainty remains a wildcard, historical precedent suggests a negotiated outcome is likely, limiting long-term disruption.
Read the full transcript below:
ROGER: Shares of Scotiabank are up slightly after the company posted better-than-expected results in its Canadian banking division. The bank reported a profit of $2.29 billion in its most recent quarter and saw earnings growth across all divisions, including domestic banking, wealth management and capital markets. Our next guest says Canadian banking remains stable, with solid margins and cost controls. Let’s get more now from Benjamin Klein, senior portfolio manager at Baskin Wealth Management. Benjamin, thanks as always for joining us.
BENJAMIN: Thanks for having me.
ROGER: Just a quick report card on Scotiabank. What did you like, and what concerns you?
BENJAMIN: Nothing was too surprising to us. The earnings seemed relatively stable. Now that Canadian banking has such a heavy emphasis on capital markets and wealth management, there’s often going to be a high correlation — outside of unusual circumstances — with how stock and capital markets are performing. The TSX has been very strong, and that’s a big reason why the banks did so well last year and so far this year, and why they’re seeing earnings increase across the board.
One interesting thing we did see was a modest uptick in delinquencies on auto loans and credit cards. It’s hard to tell, without digging deeper, what impact that might have. We’re also interested in their mortgage renewal commentary to get more colour on that.
ROGER: And what are you expecting from that mortgage renewal commentary?
BENJAMIN: It’s hard to say. 2026 is essentially the final year of the five-year mortgage renewal cycle for homeowners who signed on in 2021 at much lower interest rates. This is the last year of those mortgages being renewed at higher rates. That should be a tailwind for the banking sector overall going forward.
The biggest takeaway for us is that Canadian banks lend almost exclusively to prime borrowers, so the impact so far has been much more significant on subprime and alternative lenders. We don’t expect a major impact on bank mortgage portfolios, but it’s something to watch.
ROGER: You mentioned the TSX having a banner year. Any concerns about that as a source of income?
BENJAMIN: It depends on what you’re looking for. Banks are, to some degree, becoming more dependent on the stock market. The TSX has had an incredible year, helped in part by strength in areas like gold. To some extent, your outlook on Canadian banks depends on how resources and the broader TSX perform.
Our expectation is that this year won’t be quite as strong as last year.
ROGER: Can we read into this as an indicator for the other banks as they report, or is it case by case?
BENJAMIN: It’s unusual — outside of something like the TD anti-money laundering issue — to see one bank diverge substantially from the others. We would be surprised to see very different earnings reports from the rest of the group, though each bank has its own strengths and weaknesses.
ROGER: You’ll also be watching credit card and auto delinquencies at the other banks?
BENJAMIN: Yes. It’s too early to draw firm conclusions, but we’ll be looking at whether this is a temporary blip or something that signals a trend.
ROGER: Looking ahead to 2026, what should investors focus on?
BENJAMIN: Mortgage renewals remain a major factor. As higher rates feed through, that should support net interest margins.
Our clients own shares of Royal Bank and National Bank. We prefer banks with strong deposit bases, which provide attractive spreads between what they pay on deposits and what they earn on loans. We also favour banks with strong wealth and capital markets businesses and disciplined capital allocation.
Earnings have been highly correlated with capital markets, which have been strong. It’s reasonable to expect conditions may not be quite as favourable going forward. Bank valuations have risen with strong share performance, and they’re trading at roughly two times book value.
ROGER: Any concerns about borrowers renewing at higher rates than they secured in 2021?
BENJAMIN: There are concerns, but less so for the major banks, given their focus on prime borrowers. We’re seeing more stress among alternative and subprime lenders. If that were to worsen significantly, it could spill over, but we would be surprised to see a major impact on the large banks.
ROGER: Finally, how do tariffs and trade factor into the outlook?
BENJAMIN: The honest answer is that no one knows the precise outcome. If history is any guide, the U.S. market remains significantly dependent on Canadian exports. Our expectation would be that a deal is eventually reached and that it may not differ dramatically from the status quo. But it remains a wildcard.
ROGER: Benjamin, thanks very much for your time.
BENJAMIN: Thanks for having me.
ROGER: Benjamin Klein, senior portfolio manager at Baskin Wealth Management.
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This BNN Bloomberg summary and transcript of the Feb. 24, 2026 interview with Benjamin Klein are published with the assistance of AI. Original research, interview questions and added context was created by BNN Bloomberg journalists. An editor also reviewed this material before it was published to ensure its accuracy and adherence with BNN Bloomberg editorial policies and standards.
