Canadian banks' profitability could be impacted by tariff uncertainty, S&P says

S&P Global Ratings says the ultimate impact of tariffs on Canadian banks' results and capital levels will depend on the duration of the tariffs as well as any potential offsets through government intervention

U.S.-Canada trade war has heated up in recent weeks, with the back-and-forth between the countries unsettling financial markets

S&P says threat of tariffs has already weighed on domestic business sentiment amid economic uncertainty, adding that a prolonged duration of tariffs could create headwinds for credit quality and profitability

"In a longer duration tariff scenario, we expect that banks' profits could be reduced through lower net interest income from shrinking loan growth, lower fee revenues, and higher provisions for credit losses" — S&P Global Ratings credit analyst Daniel Da Silva

Still, the stress should be manageable in S&P's revised base case as strong balance sheets, diverse loan books, and varied revenue sources of Canadian banks help offset the impact of tariffs