National Bank says 2016 earnings could rise despite higher loans losses

MONTREAL – National Bank of Canada says it has a shot at increasing earnings next year even if loan losses, including to the oil sector, grow.

The Montreal-based bank — the sixth-largest in Canada — said a precedent was set in 2009 when earnings per share rose even though the provisions for credit losses was almost twice the current level.

“It’s not a promise, but I’m telling you we’re going to try and I’m telling you it’s been done before,” CEO Louis Vachon said Wednesday during a conference call after reporting its third quarter earnings.

The bank said it has limited exposure to the oilpatch. Loans to that sector accounted for just 2.8 per cent of the $113.4 billion in total loans in the third quarter, which grew nine per cent from the prior year.

“We will continue to monitor this portfolio very closely and see the potential impact of a prolonged oil price decline as manageable,” added Bill Bonnell, executive vice-president risk management.

National Bank’s (TSX:NA) total exposure to the petroleum-based provinces of Alberta, Saskatchewan and Newfoundland and Labrador was just 9.1 per cent of total loans.

Nearly 84 per cent of the bank’s loan book is to borrowers in Quebec and Ontario, which is benefiting from the big drop in oil prices.

Provisions for credit losses amounted to $56 million, down two per cent from the second quarter.

The bank is forecasting slow economic growth in the coming quarters — 1.3 per cent in Canada and Quebec, where most of the bank’s operations are based, this year and 1.6 per cent in 2016.

In response to low growth, the bank said it will focus on reducing its growing expenses. Vachon said the Canadian banking sector also has room to improve its efficiency by getting rid of cheques and reducing or eliminating the use of cash.

“If it’s been done in Sweden, there’s no reason why it should not be done in Canada,” he said.

The bank beat expectations as its third-quarter profit grew three per cent to $453 million.

Excluding one-time items, National earned a record $444 million or $1.25 per share, up from $427 million or $1.20 per share in the third quarter of 2014. Revenues were up three per cent to $1.51 billion.

The bank was expected to earn $1.19 per share in adjusted profits on $1.48 billion of revenues, according to analysts polled by Thomson Reuters.

Analyst John Aiken of Barclays Capital said the bank should be able to maintain its industry-leading growth in retail loans even in a moderating economy as it increases market share in Quebec.

“With lower exposure to consumer and commercial borrowers in Alberta on a relative basis, we anticipate that it should be able to sidestep most of the credit headwinds facing its peers,” he wrote in a report.

Follow @RossMarowits on Twitter.