Daily Macro

Macro Notes - Why We’re Still Bullish on CAD Banks

December 02, 2025

Bipan Rai

Managing Director, Head of ETF & Alternatives Strategy

As Canadian banks begin to report Q4/FY25 earnings this week, we thought it’d be a good time to rehash why we continue to like this sector into next year.

First, CAD banks are flush with capital – which are well above regulatory minimums (see Chart below). We expect that could open the door for increased share buybacks/dividends next year.

Second, lower rates and a more stable domestic backdrop imply that banks are likely to invest in organic growth. That will be via increased mortgage/loan issuance as the economy - including the housing market - heals further.

Third, the most recent fiscal budget did open the door for private sector participation in key infrastructure, defense and homebuilding projects. Again, that means loan demand is likely to increase at the margin, and banks (as capital deployers) stand to benefit.

Fourth, funding isn’t expected to be an issue. Deposits are expected to grow slightly as nominal GDP does, while investor demand for bank issued paper is expected to remain high.

Finally (and most importantly), CAD banks are just so incredibly diversified when it comes to revenue streams. From capital markets businesses that benefit when volatility spikes (trading) to others that do well when IPO/M&A activity increases (fee-based) to wealth management and cross-border services. These all matter far more now than they did in years past – when bank profitability was far more dependent on retail mortgage origination.

Of course, there are risks. An end to the USMCA agreement will leave the Canadian economy extremely vulnerable and will likely mean higher unemployment and further pressures in the housing market. Neither of those project well for CAD banks given what it means for funding pressures and the quality of assets held by banks. But for now, these are merely risks to monitor.

We aren’t in the business of picking single stocks. Instead, we prefer the diversified approach via exposure to ZEB and possibly ZWB.

Chart 1 – As of End-Q3, CAD Banks Remain Flush with Capital

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