The Unstoppable Rise of Canada's Big Banks in 2025: Earnings, Valuation, and the Outlook for 2026

Canada's Big Six Banks-Royal Bank of Canada (RBC), Toronto-Dominion Bank (TD), Bank of Montreal (BMO), Bank of Nova Scotia (Scotiabank), CIBC, and National Bank of Canada (NA)-have defied macroeconomic headwinds in 2025, delivering robust earnings and outperforming market expectations. Despite persistent U.S. , these institutions have leveraged cost discipline, capital efficiency, and strategic acquisitions to bolster profitability. However, as valuations remain elevated and trade tensions linger, investors must scrutinize whether this outperformance is sustainable into 2026.

Earnings Momentum: A Tale of Resilience

The third quarter of 2025 marked a turning point for Canada's banking sector. Five of the six major banks exceeded analyst forecasts, driven by declining loan loss provisions and strong revenue growth. For instance, BMO , , reflecting improved credit conditions. Similarly, RBC , .

National Bank of Canada (NA) emerged as a standout performer, . The bank also and loans, underscoring its aggressive credit expansion strategy. Meanwhile, Scotiabank outperformed forecasts by reporting , .

These results highlight the sector's ability to adapt to a volatile environment. However, risks remain. Elevated unemployment and potential defaults could pressure loan portfolios, particularly in sectors exposed to U.S. trade policies. Analysts caution that banks should use this period of strength to build reserves and prioritize long-term stability over aggressive growth.

Valuation Metrics: A Double-Edged Sword

Despite strong earnings, Canadian banks trade at a premium. As of late 2025, , . For example, , , both above historical averages. These valuations reflect confidence in the banks' capital positions and earnings resilience but leave them vulnerable to downward revisions if quarterly results fall short.

Capital strength remains a key differentiator. , well above the regulatory minimum. BMO, for instance, , , 2025 according to data. These robust capital buffers provide a safety net against potential losses from trade-related disruptions or economic slowdowns.

Cost Management and Strategic Initiatives

Cost discipline has been central to the banks' success. RBC and TD reduced loan-loss provisions , respectively, in Q3 2025, while expanding share buyback programs to return capital to shareholders. BMO increased its buyback target to 30 million shares, leveraging its strong earnings to enhance shareholder value.

National Bank of Canada has also prioritized efficiency, . These savings, by 2028, underscore the bank's commitment to long-term profitability.

2026 Outlook: Navigating Trade Uncertainty

Analysts remain divided on the sector's ability to sustain its momentum. While , according to market analysis. , citing the drag from U.S. tariffs on key Canadian exports like softwood lumber and kitchen cabinets.

Diplomatic efforts to resolve trade disputes are ongoing. 's planned meeting with U.S. President aims to reduce tariffs and stabilize economic conditions. However, analysts warn that without significant revisions to 2026 earnings estimates, the sector's premium valuations may not hold according to market projections.

Conclusion: A Balanced Approach for Investors

Canada's Big Banks have demonstrated remarkable resilience in 2025, but their 2026 outlook hinges on two critical factors: the resolution of trade tensions and the sustainability of their cost management strategies. While strong capital positions and proactive cost controls provide a buffer, investors must remain cautious about overvalued metrics and macroeconomic risks. For now, the sector's "unstoppable rise" appears justified-but only if banks continue to prioritize stability over short-term gains.