Canadian banks’ future growth will need to rely less on mortgages and products that are “new to Canada centric,” Bank of America analyst Ebrahim Poonawala says. (Photo by Gary Hershorn/Getty Images) · Gary Hershorn via Getty Images
Analysts at Bank of America (BofA) have bumped their price targets for Canada’s six largest banks, writing that optimism about government policies and an improved economic outlook “should serve as tailwinds” into the second half of 2025.
In a Monday note to investors, analyst Ebrahim Poonawala deemed the banks’ current valuations “not expensive” and raised the targets for all the lenders between two and 10 per cent. He singles out CIBC (CM.TO, CM), Toronto-Dominion Bank (TD.TO, TD) and National Bank of Canada (NA.TO) as offering the best risk-to-reward ratios.
“We see room for further re-rating in stock valuations on expectations for an improving growth outlook which has the potential to ignite a positive EPS revision cycle,” Poonawala wrote.
Royal Bank of Canada’s (RY.TO, RY) target was increased the most, from $194 to $214 for shares traded on the Toronto Stock Exchange — a rise of just over 10 per cent.
BofA economists recently wrote that Canada’s economy has been “more resilient than originally expected,” Poonawala notes, raising their forecast for gross domestic product growth in 2025 from one per cent to 1.4 per cent. There is optimism that Prime Minister Mark Carney’s policy moves will help stimulate the economy and reach a trade deal with the U.S.
“The recent Senate approval to fast-track infrastructure projects and the elimination of some interprovincial trade barriers indicate a sense of urgency,” Poonawala wrote.
CIBC, with its current valuation lower than that of the other banks, has potential for a domestic rebound, the BofA note says, while TD could be propelled by its ongoing strategic update and National Bank by gains from synergies tied to its acquisition of Canadian Western Bank.
BofA also sees the possibility of a bounce back in the housing market, following a spring season chilled by tariff uncertainty. “Resolution of the U.S. trade war could drive increased confidence in the overall economy, getting Canadian consumers off the sidelines and accelerating mortgage demand,” Poonawala wrote.
The note highlights signs that the credit environment may be improving, and observes that consumers have remained largely resilient in the current climate. The impact of weaker credit on the banks’ bottom lines “could be in rear view,” the note says.
Poonawala cautions that some major shifts are happening with longer-term significance: the decades-long housing boom that has helped build overall wealth, in tandem with steady population growth from immigration, is “unlikely to repeat.” Consequently, for their future growth, banks will need to rely less on mortgages and products that are “new to Canada centric,” he says.