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Canadian banks will see margin pressure this year due to low interest rates, competitive asset pricing and rising funding costs, Credit Suisse said and downgraded Canadian Imperial Bank of Commerce (CM-T) to 'neutral.'
Analysts have grown increasingly wary about the health of Canada's financial sector, which was regarded as a haven of stability a few years back, fearing an end to the double-digit profit growth that has made the sector a safe haven for investors spooked by rocky markets.
The year-over-year comparison of Canadian banks' results will highlight the challenges of slower domestic asset growth and net interest margin compression, analyst Gabriel Dechaine wrote in a note to clients.
A relatively weaker capital markets will also hurt the results, Dechaine said.
Dechaine also warned of smaller dividend increases as earnings growth for the sector slows.
However, Canadian bank results should see a modest sequential growth owing to strong capital markets revenues, particularly in January, he said.
The analyst raised his price targets on TD Bank (TD-T), National Bank of Canada (NA-T), Bank of Montreal (BMO-T), Royal Bank of Canada (RY-T) and Bank of Nova Scotia (BNS-T), and upgraded BMO by a notch to 'outperform.'
Analyst Dechaine is rated four stars by Thomson Reuters' StarMine data for the return performance of his recommendations relative to peers on companies in his coverage universe. He is rated two stars for the accuracy of his earnings estimates.