Canadian bank stocks are expected to benefit in the second half of 2025, as optimism grows around economic policy under Prime Minister Mark Carney and the potential for a US trade deal ahead of a key July 21 deadline.
Analysts at Bank of America said improved GDP prospects, infrastructure stimulus, and easing interprovincial trade barriers should support the sector, with valuations remaining “in reasonable territory” ahead of a potential earnings-per-share (EPS) revision cycle.
“Policy optimism, outlook for improving GDP growth should serve as tailwinds for Canadian bank stocks into 2H25,” analysts wrote.
Among individual names, Bank of America cited Canadian Imperial Bank of Commerce (CIBC) (TSX:CM), Toronto-Dominion Bank (TSX:TD) and National Bank of Canada (TSX:NA) as offering the best risk/reward profiles. CIBC trades at a discount to peers and is well-positioned to benefit from a domestic rebound, while TD’s upcoming investor day in September could spotlight its refreshed strategy and profitability targets.
National Bank, meanwhile, is nearing the monetization of deal synergies tied to Canadian Western Bank, with a path toward nearly 18% ROE over the next one to three years.
Bank of America also highlighted five sector themes for the remainder of 2025, including a recovering housing market, delayed peak credit losses, strong capital positions, early signs of policy urgency ahead of elections, and improving return metrics.
Still, the bank cautioned that competitive pressures are rising. Looser capital rules in the US, the lifting of Wells Fargo’s asset cap, and the emergence of challenger banks like Wealthsimple could test Canadian lenders’ margins and market share.
Meanwhile, analysts believe that US expansion via M&A remains unlikely until a trade deal is secured.