We are looking for Canadian banks that may be positioned to outperform their peers in a rising interest rate environment
, a Toronto-based residential and commercial lender, topped our screen with 95 per cent of its total revenues generated from interest income. Equitable may offer investors value as it trades at a P/E ratio of 7.4, which is the cheapest amongst all the companies that passed our screen. Equitable Bank, its subsidiary, has an agreement to acquire an 84 per cent majority stake in Concentra Bank, a Saskatoon-based wholesale bank, which is pending regulatory approval. The deal, announced on Feb.
Bank of Nova Scotia, Canadian Imperial Bank of Commerce, National Bank of Canada, Toronto-Dominion Bank, Bank of Montreal,had 65.6 per cent of its total revenues coming from interest income; additionally, it offers investors geographical diversification as Latin American operations account for 30.1 per cent of its revenues , according to FactSet.
Investors should also consider a few risks of investing in banks: 1) rising interest rates could lead to a slowdown in the broader economy, leading to a lower volume in overall lending; 2) savings rates could increase with interest rates, which are viewed as an expense to banks in exchange for customers choosing to bank with them; and 3) Ottawa is planning to levy additional taxes on Canadian banks and insurers.
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