Will Canadian Banks See Even Better Earnings in 2026?

Summary

• Diversification Driving Growth: Despite the slowest loan growth in decades, Canadian banks delivered nearly 10% revenue growth, with non-interest income (trading and fee-based) now making up 54% of total revenues.
• Mixed Core Performance & Cautious Outlook: Capital markets and wealth management were strong, while traditional lending lagged; banks remain cautious on credit risk, increasing provisions for non-impaired loans.
• Valuation & Strategy Implications: Robust capital positions support dividends and buybacks, creating rationale for an equal-weight beta exposure such as ZEB. For those with valuation concerns, we suggest covered call strategies like ZWB to smooth returns and limit volatility.

Among the many hats we’re asked to wear at times, moonlighting as financial sector analysts is one of our favourites. Each quarter, we’re asked to come up with the important themes that characterize the earnings releases of the ​‘Big Six’ Canadian banks and what they mean for our ETF product suite. This is especially important now given the question marks with respect to the economy and whether the Bank of Canada (BoC) might actually be talking up rate hikes at this time next year.

So, what were the important themes from the Big Six’s latest earnings? A few worth noting:

• First, strong results from capital markets (primarily trading) and wealth management carried the quarter.

• Second, personal and commercial lending continues to struggle (especially in Canada). Pre-tax, pre-provision earnings were softer than expected in that segment for the most part.

• Third, the uncertain macro backdrop is leading to different assessments of credit risks going forward. For instance, we saw variation when it came to provisions for credit losses (PCLs) with a few banks increasing them for stage 1 and 2 loans (non-impaired). Again, that implies that banks are still cautious about the current economic backdrop.

• Fourth, CAD banks still retain very strong capital positions. That allowed a few of them to increase dividends and conduct share buybacks this quarter and will remain a key strength going forward.

If there is a single, unifying theme at play here, it’s this: Canadian banks have become especially adept at generating revenues outside of traditional retail banking. Indeed, the migration toward fee-based, diversified revenue streams has been instrumental in maintaining profitability this year.

Consider the following: Chart 1 shows the annual growth in loans (both mortgage and non-mortgage) for Canadian charted bank balance sheets going back to the turn of the century against total net revenues. If current patterns persist, this calendar year will mark the slowest pace in loan growth in a non-crisis year (excluding 2008, 2009 and 2020) since 2003. Despite this, revenues grew by close to 10% according to our estimates – among the best years of revenue growth this century.

Chart 1 – CAD Banks Don’t Need Loan Growth to Drive Net Revenues

Loan growth is estimated using the information on chartered Canadian bank balance sheets each year. Another way to demonstrate this is to look at the portion of non-interest income that now makes up total revenues compared to prior periods. The percentage of trading revenues and other fee-based income across business lines accounted for 54% of total revenues last year. For most of this century, it accounted for less than 50% (if we exclude the crisis years of 2008, 2009 and 2020).

Of course, the shift towards diversified revenue streams is augmented by strong capital positions. Each of the Big Six retain CET1¹ and total capital that are well above regulatory benchmarks. The increased reliance on revenue generation outside of retail lending means that banks can more easily return capital to shareholders (via dividends and share buybacks). It also means that the potential for capital deployment via lending increases at the margin.

Looking ahead to 2026, there are opportunities aplenty for Canadian banks for capital deployment. Private sector participation in federal infrastructure, defense and housing initiatives implies an increase in capital demand. At the same time, a lower starting point for interest rates and a possible stabilization in home prices could lead to an increase in mortgage demand. These will be amplified if the CUSMA² negotiations go smoothly.

But if you’re looking for another source of risk outside of that, it’s valuation as CAD banks are trading relatively rich right now (see Chart 2). That is an observation that might tip the scales in favour of a covered call strategy, like ZWB.

Chart 2 – Price-to-Earnings for Canadian Banks Looks Rich 

To reiterate, we view the Canadian banks’ robust capital positions as supporting dividends and buybacks through next year, creating rationale for an equal-weight beta exposure such as ZEB. For those with valuation concerns, we suggest covered call strategies like ZWB.

Performance (%)

Bloomberg, as of November 28, 2026

¹ Common Equity Tier 1 (CET1) capital is the highest quality, core capital a bank holds, representing its strongest financial buffer made up of common shares, retained earnings, and other reserves, designed to absorb unexpected losses and keep the bank stable during crises.

² CUSMA (Canada-United States-Mexico Agreement) is the current free trade pact for North America.