12:56 PM EDT, 05/17/2024 (MT Newswires) -- Canadian banks begin reporting second quarter results on May 23, entering the reporting season underperforming the S&P/TSX by over 300bps year-to-date, writes National Bank.

Analyst Gabriel Dechaine attributes most of Big-6 underperformance to rate cut expectations that continue to be deferred. However, he does have confidence in other factors that were previously sources of uncertainty, such as NIM performance (flat expectation) and expense management (improved efficiency outlook). He also believes the regulatory environment has become more stable, which should be reinforced if OSFI decides to keep the DSB buffer flat this coming June.

Top picks are CIBC, Royal Bank and BMO. However, with BMO's commercial loan growth challenging both its Canadian and U.S. operations (including top-line expansion of Bank of the West), Dechaine believes its near term performance outlook is challenged on an absolute basis. "We still prefer it on a relative basis to TD."

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