Earnings reports, which start on Tuesday, cap a tumultuous year that saw inflation hit decade highs and the Bank of Canada embarked on a relentless monetary tightening campaign.

On average, the big six banks’ profits are expected to fall 4% from last year due to the decline in investment banking activities. Mergers and acquisitions (M&A) in the three months ended Sept. 30 fell by nearly half to C$22.8 billion ($17 billion), according to Refinitiv data.

Investors have already pushed down bank shares in anticipation of a weaker quarter, with the banking sub-index down 6.8% year-to-date, versus a 4.7% drop for the larger benchmark.

Since the Bank of Canada’s first rate hike in March, the Big Six have lost more than C$63.5 billion in market value.

“The increased volatility and pressure on equity markets in the fiscal quarter suggest that we may see a continued decline in insurance income this quarter,” said Joo Ho Kim and Amanda Abraham, analysts at Credit Suisse.

The Royal Bank of Canada and the Bank of Montreal, which have the largest capital markets activities, are expected to suffer the biggest drop in profits.

However, analysts are divided on the impact of a slowing economy, as some macro indicators still point to robust demand for loans.

“The bottom line is that those looking for evidence of a recession in this latest batch of bank results will again be sorely missed,” Bank of Nova Scotia’s Meny Grauman and Felix Fang said in a note.

“We continue to believe that a defensive stance remains appropriate” heading into fiscal 2023, adding that they expect credit conditions to hold remarkably well.

The central bank’s rate hikes are expected to have boosted the net interest margin for Canada’s big six lenders, a key measure of how much banks earn on lending, by nearly 8 basis points from a year ago.

“Corporate lending was particularly strong and helped by strong balance sheets outside of Canada,” said KBW analysts Mike Rizvanovic and Abhilash Shashidharan.

In the first two months of the quarter, lending rose 15%, Credit Suisse said, citing data from the Office of the Superintendent of Financial Institutions.

But raising interest rates too high can cause borrowers to spend less and save more, hurting the demand for loans. Banks face an uphill battle to navigate a downward trend in the housing market as higher borrowing costs weed out potential buyers, casting a shadow over what is normally a lucrative source of income for lenders.

Mortgage loans make up almost 65% of national bank loans.

Canadian Imperial Bank of Commerce, the No. 4 lender whose total loans are domestic retail loans, will be hit harder than its peers, analysts say.

However, there are signs that the Bank of Canada may soon be nearing the end of its hawkish rate hike cycle, which could stabilize the housing market and increase overall demand for credit.

Banks’ provisions for bad debts in the fourth quarter are expected to nearly triple from a year ago, and their forecast for 2023 will be a key element at a time when investors are punishing stocks at the slightest sign of a break in consumer financial health.

Cormark analysts expect the Bank of Nova Scotia, which has been more aggressive than its peers in releasing reserves during the pandemic, to accelerate the replenishment of provisions for bad debts as the difficulties continue.

National Bank of Canada and Toronto-Dominion Bank, which are also part of the Big Six, publish their results on Wednesday and Friday, respectively.

($1 = 1.3426 Canadian dollars)