TORONTO - Canadian banks, some of which earned record profits last year, are expected to report records losses on private sector loans in their fiscal 1992 results, analysts said last week.

The sluggish economic recovery particularly in Ontario, and slumps in real estate values and commodity prices have caused problem loans at the big Canadian banks to surge.

Gross loan losses among the six major chartered banks will likely top $6.5 billion (all figures Canadian dollars) for the year ended Oct. 31, and could approach $6.9 billion, analysts estimated.

Worst in Years

Gross loan losses would have been higher only in 1987, when the big six banks racked up more than $6.1 billion in writeoffs on developing countries' debt.

"The only real issue is what they'll do with loan-loss provisioning," said one industry analyst, who declined to be named. "The bottom line in this kind of a market is that it's like surveying in the middle of an earthquake. There's a fair amount of discretion involved in bank earnings and that's going to be reflected in the fourth quarter."

A reversal in the interest rate trend during the fourth fiscal quarter squeezed margins, further compounding the banks' difficulties.

Impact of Loss Provisions

"Given the state of the economy, certainly the likelihood of increased provisioning is an issue," said analyst Kevin Choquette of First Boston. "One can continue to expect negative loan-loss provisions over the next 12 to 18 months."

The nation's largest bank, Royal Bank of Canada, took the unusual step of announcing on Nov. 3, only three days after the end of the last quarter, that it had raised its estimate for loan losses. It also pre-announced a net loss of $480 million, or $1.65 a share, for the quarter.

The losses resulted from a jump of $900 million in loss provisions, to $1.29 billion.

For fiscal 1992, Royal sees net income of $100 million, or after payment of preferred dividends, a net loss of 5 cents a share.

The No. 2 bank, Canadian Imperial Bank of Commerce. which lost $33 million for the first nine months, said in early September it expects to record positive earnings for the fiscal year.

Toronto-Dominion Bank could be affected by restructuring charges resulting from its acquisition of Central Guaranty Trust Co.

Analysts said reserves retained from the Third World loan problems of the late 1980s are ironically helping to cushion the impact of real estate-related losses.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.