Three bank stocks to profit from rising interest rates

A rising rate environment creates a growth tailwind for the banking sector.

Vikram Barhat 1 August, 2017 | 5:00PM

The Bank of Canada in July decided to raise the overnight interest rate by 25 basis points, from 0.50% to 0.75%. The first in seven years, the rate hike from the central bank has a clear message: there's growing confidence in Canada's economic recovery. In fact, the BoC has already hinted at the possibility of another rate hike before the year is out.

Canada's largest banks, which collectively hold roughly 90% of the nation's banking deposits, wasted no time in upping their prime interest rates. While this may have implications for consumers, a rising rate environment is supportive of financial institutions and, along with other positive economic indicators, creates a growth tailwind for the banking sector.

Despite the effects of low oil prices and a cooling housing market, Canadian banks remain on a strong footing and face no existential threat thanks to strategic allocation of capital to higher-return businesses and cutting costs through technological upgrades and shedding operational fat.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
Canadian Imperial Bank of Commerce101.43 CAD-3.16
Royal Bank of Canada99.13 CAD-3.31
The Toronto-Dominion Bank68.35 CAD-3.60

About Author

Vikram Barhat

Vikram Barhat  Vikram Barhat is a freelance writer.