12:44 PM EDT, 08/16/2024 (MT Newswires) -- The Big-6 Canadian banks enter the third quarter reporting season (which kicks off on August 22) having underperformed the market by 600bps YTD. However, National Bank's Gabriel Dechaine remains positive on the sector overall. A sufficient level of rate cuts should allow Canadian banks to avoid a sharp uptick in loan losses. National's Economics team is forecasting an additional 50bps of rate cuts this year, with a further 100bps in 2025.

The group is also well capitalized, with a more supportive regulatory environment. National favours banks with relatively higher domestic focus, with CIBC and RBC at the top of the pecking order.

Dechaine is also Outperform-rated on BMO, even though he steeply revised its EPS estimates this quarter. The overhang related to its credit performance, weak loan growth and U.S. exposure in general -- this will likely persist until after the November U.S. election and the Fed begins to shift towards a rate cutting cycle, Dechaine said. In other words, patience is required.

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