It is one of the most anticipated times of the year for investors interested in Canadian stocks – bank earnings season. Canada’s Big Six banks are among the most widely held stocks across the country, and as such they are subject to added scrutiny.

The performance of these companies also tends to be a bellwether of the Canadian economy and as COVID-19 restrictions subside, those learning how to buy stocks and veteran investors alike, all eyes will be on the performance of Canadian bank stocks from this past quarter.

The Bank of Montreal (TSE:BMO) and the Bank of Nova Scotia (TSE:BNS) are first out of the gate, reporting third quarter results next Tuesday, August 24, 2021. Thus far, this is what analysts are expecting out of the big six:

Important to note, the banks are sitting on easy comparables versus last year’s pandemic-impacted quarter. There were many large provisions for credit loss (PCL) charges last year which makes Q3’s year-over-year (YOY) earnings growth pretty significant.

While earnings growth is important, there are likely to be many hits and misses this quarter. Usually pretty reliable when it comes to bank earnings, analysts have had a hard time pinpointing EPS results during the pandemic. In terms of top line growth, National Bank (TSE:NA) leads the way once again and is expected to retain its spot as one of the highest growth Big Six banks.

Somewhat surprisingly, estimates call for 7.60% drop in revenue growth for Royal Bank of Canada (TSE:RY) which was one of the few banks to grow earnings and revenue in 2020.

In terms of momentum leading up to earnings, analysts are expecting bigger things out of the Bank of Montreal as earnings estimates have trended upwards by 228 basis points over the past 30 days.

The worst? That distinction falls to the Bank of Nova Scotia. The main culprit behind the downwards trend in estimates is likely Bank of Nova Scotia's exposure to Latin America, which has struggled with the pandemic – more so than its North American counterparts.

Dividend Increases

At this time of the year, investors would be banking on some juicy dividend increases from Canada’s banks. Not so this time around.

The Office of the Superintendent of Financial Institutions (OSFI) has yet to lift the cap on dividends – a source of frustration among many investors. This is especially true as banks have done exceptionally well during this pandemic, and banking peers south of the border were given the green light a few months ago.

We are cautiously optimistic that the green light to raise dividends will come in the last quarter of Fiscal 2021 – post October 31, 2021. Why this specific date? It is when the OSFI is upping the domestic stability buffer to 2.50% - which is above pre-pandemic levels.

During the pandemic, the OSFI reduced the buffer from 2.25% to 1.00% to help ease the CET1 ratio requirements of Canada’s banks. Now that it will be inline with pre pandemic levels, we expect dividend raises to follow.

Of note, all banks are sitting with comfortable CET1 ratios but some are better positioned that others. Case in point, TD Bank (TSE:TD) has the highest CET ratio at 14.2% and is likely to re-establish itself as the bank with the highest dividend growth rate, a title it held for the better part of the past five years.

One of the reasons why we said ‘cautiously’ optimistic is because of the many COVID-19 variants causing havoc in recent weeks. Calls for a fourth wave and further shutdowns are increasing and this may lead to the OSFI exercising more caution. We’ll find out soon enough if raises are in fact coming, there will likely be an announcement post-earnings season.