10:24 AM EST, 03/07/2024 (MT Newswires) -- Rising loan losses could reduce earnings for Canadian banks, CIBC Capital Markets said on Thursday.

"Credit remains a wildcard," CIBC analyst Paul Holden said in a note to clients.

"Provisions for credit losses (PCLs) were higher than consensus for four of the six banks and impaired PCLs increased 18% quarter over quarter," Holden said. "Banks are guiding to higher credit losses still to come."

The analyst said both his forecasts and consensus imply a mild recession-type scenario, which is reflected in current valuation multiples.

"There is more downside risk relative to expectations versus upside in our opinion," Holden said.

The analyst lowered his price target on Bank of Montreal ( NRGD ) to $120 from $125 (Neutral), Bank of Nova Scotia ( BNS ) to $64 from $66 (Neutral), National Bank of Canada ( NTIOF ) to $109 from $110 (Outperformer), Royal Bank of Canada ( RY ) to $135 from $140 (Neutral), and Toronto-Dominion Bank ( MLWIQXX ) to $86 from $88 (Neutral).

"National Bank, a very well capitalized bank, with the highest ROE in the group, lowest loan loss ratio, and largest contribution from capital markets is our top pick," Holden said.

Price: 125.85, Change: +0.84, Percent Change: +0.67