Canada’s TD Bank’s fourth-quarter profit was driven by higher provisions

Nov 30 (Reuters) – TD Bank Group (TD.TO) reported a decline in its fourth-quarter profit on Thursday as Canada’s second-largest lender set aside more rainy-day funds to cover potential loan defaults.

Multiple rate hikes by the Bank of Canada allowed lenders to demand larger loans. However, this, coupled with ongoing inflationary pressures and difficult economic conditions, has also increased the risk of loan defaults and forced banks to set up more provisions for loan loss (PCL).

TD’s PCL increased to C$878 million in the quarter, up from C$617 million a year ago.

Peer Scotiabank (BNS.TO), which opened Canadian banks’ earnings season on Tuesday, also allocated more funds to prepare for possible loan defaults, cutting into its profit.

TD’s net interest income – the difference between what banks earn from loans and what they pay out on deposits – fell nearly 1.8% to 7.49 billion Canadian dollars.

The lender’s residential and commercial business posted a 1% drop in net profit, while its U.S. retail business fell 17%.

The bank’s adjusted net income fell to 3.51 billion Canadian dollars ($2.58 billion), or 1.83 Canadian dollars per share, in the three months ended October 31, compared with 4.07 billion Canadian dollars, or 2.18 Canadian dollars per share in the previous year.

($1 = 1.3618 Canadian dollars)

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