By Nivedita Balu and Niket Nishant
(Reuters) -Two of Canada's big six banks beat expectations for quarterly earnings on Thursday, as Royal Bank of Canada (TSX:RY) benefited from a rebound in dealmaking and Canadian Imperial Bank of Commerce made smaller-than-expected loan provisions.
At RBC, the country's largest lender which has been cutting costs through layoffs and other measures, the boost to its capital markets unit offset a surge in provisions for credit losses (PCLs) to C$720 million in the fourth quarter from C$381 million a year earlier.
"Excluding severance charges, it was a clean beat," National Bank analyst Gabriel Dechaine said.
A rise in PCLs at the country's second biggest bank TD Bank (TSX:TD) contributed to an earnings miss along with weakness in its U.S. business.
The higher bad loan provisions continue a trend this year as banks gird themselves for a potential surge in defaults.
TD said it would be challenging to meet its medium-term adjusted earnings growth target range of 7%-10% in the new fiscal year.
"The environment is fluid, is quite complex with PCL normalization and that's why it's challenging to meet those targets for 2024," TD's CFO Kelvin Tran said in an interview, adding that the bank was still confident it would get there owing to its "diversified business."
The bank said it was also aiming to reduce its workforce by 3% as it cuts costs.
It reported adjusted earnings of C$1.83 per share, 7 Canadian cents shy of estimates.
The Canadian economy has been teetering on the brink of a recession after a run of aggressive central bank rate hikes.
Analysts have warned that rising deposit costs could squeeze profitability, as lenders pay heftier interest rates on customer deposits, a key source of capital.
"The economic backdrop will likely remain fluid and present new challenges in some areas of the economy," CIBC (TSX:CM) CEO Victor Dodig said.
CIBC also beat profit expectations as it set aside smaller-than-expected loan provisions and slashed costs through a 5% reduction in its workforce and other expenses.
The lender, Canada's fifth biggest, reported adjusted earnings of C$1.57 per share, compared with expectations of C$1.53.
RBC reported adjusted earnings of C$2.78 per share, comfortably beating expectations of C$2.62, according to LSEG data. The beat was also driven by a low tax rate.
In a report filed with regulators last month, RBC's U.S. unit City National Bank said the Canadian lender had injected about $2.95 billion into it this year.
Bank Nova Scotia on Tuesday missed profit estimates as it set aside C$1.26 billion in loan loss provisions.
($1 = 1.3603 Canadian dollars)