Article content continued

Aggregate earnings among the Big Six banks were down six per cent quarter-over-quarter and five per cent year-over-year, Colangelo said. Provisions for loan losses, meanwhile, were up 17 per cent over the previous quarter and 36 per cent from a year earlier, weighing on the lenders’ bottom lines.

“Credit losses needed to normalize from the historically low level that they’ve had,” Colangelo said.

While the banks are still reporting billions in profit, buying back millions of their own shares and paying out enticing dividends, investors are nevertheless likely to be watching the loan loss figures closely.

They were put on alert earlier this year when money manager Steve Eisman, one of the stars of the book The Big Short, told the Financial Times that he was betting against some of the Canadian banks and “calling for a simple normalization of credit that hasn’t happened in 20 years.”

The banks were already facing their fair share of challenges. Trade-related uncertainty has hurt their capital markets operations and lower interest rates put pressure on what they can charge customers. Furthermore, recent years of big profits have heightened expectations.

RBC, Canada’s biggest bank, reported this week that earnings fell one per cent year-over-year for their fourth quarter, to $3.2 billion. And while the lender reported some severance costs, it also noted provisions for credit losses rose around to $499 million for the three months ended Oct. 31, up around 41 per cent from $353 million a year earlier.