Canadian Banks
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Key Takeaway:
The worst-case scenario related to U.S. tariffs did not materialize for Canada. As a result, the negative impact feared for Canadian banks has been avoided or deferred — at least for now. This could create a short-term opportunity for certain underperforming bank stocks.
Tariff Risk Was Expected – But Canada Escaped Major Hits
There was widespread concern that the April 2 tariff package from the U.S. would include new duties targeting Canadian goods. However, both Canada and Mexico were excluded from the finalized legislation. While the U.S. did announce broad reciprocal tariffs on many countries, this exclusion significantly reduces the near-term threat to Canadian exports and by extension, Canadian financial institutions.
Valuations: Modestly Discounted But Limited Upside
On average, Canadian banks are trading at 1.5x price-to-book (P/BV) — around a 4% discount to their five-year trailing average.
While this suggests some room for upward valuation normalization, analysts caution that a risk premium may remain warranted due to the potential for future trade escalations.
Banks with Most Canadian Exposure Could Rebound the Hardest
Scotiabank (BNS), CIBC (CM), and National Bank (NA) have been laggards so far this year. These banks are more domestically focused, meaning the lack of U.S. tariffs directly impacting Canada is relatively more beneficial to them.
Earnings Impact: Manageable Headwinds
Despite the relatively positive news on tariffs, Canadian banks still face pressures on 2026 EPS estimates due to other macro and sectoral forces:
Continued sectoral tariffs (e.g., steel, aluminum, autos)
25% tariffs on non-USMCA-compliant goods
Lower loan growth
Slightly narrower net interest margins (NIMs) due to softer rate curves
Lower investment banking revenues
Light increase in provisions for credit losses (PCLs), especially for performing loans.
Overall, analysts estimate the downside to 2026 EPS to be relatively mild, around 2%–3%.
Outlook
Canadian banks dodged a bullet with the latest U.S. tariff package., and while the broader macro backdrop still poses challenges, the absence of direct Canada-targeted tariffs provides relief. The most domestically focused banks, particularly BNS, CM, and NA, may benefit from a short-term valuation rebound.
STA Research (StockTargetAdvisor.com) is a independent Investment Research company that specializes in stock forecasting and analysis with integrated AI, based on our platform stocktargetadvisor.com, EST 2007.
