BMO Sees Loan Demand Surge as Returns Rise Toward 2027 Targets

Bank Of Montreal (NYSE:BMO) Chief Financial Officer Rahul Nalgirkar said the bank is seeing stronger client activity and loan demand despite uncertainty surrounding Canada-U.S. trade negotiations, while maintaining its focus on improving returns through core operating performance.

Speaking at an investor event, Nalgirkar said loan closings this year were nearly double the prior year’s level following a slower 2025, with commercial lending pipelines and client conversations remaining strong. He said clients are seeking greater confidence as trade negotiations progress, and that BMO’s North American commercial banking presence positions it to support cross-border, supply-chain and export-related needs.

Returns Improve Across Business Segments

Nalgirkar said BMO’s third-quarter performance reflected continued execution against the plan it outlined at its investor day. The bank reported a 14% return on equity, up from 9.8% at the end of 2024, representing an improvement of about 220 basis points.

He said the improvement was broad-based, with all four of BMO’s business units contributing to the expansion. Revenue increased 11% year over year, while pre-provision, pre-tax income rose 13% to a record C$4.5 billion. All four units reported record pre-provision, pre-tax income, he said. Earnings per share grew 22%, while return on tangible common equity reached 18%.

BMO is targeting a 15% return on equity and 18% return on tangible common equity by the end of 2027. Nalgirkar said an estimated 50% to 60% of the remaining improvement needed to reach that target is expected to come from core operating performance, including growth in fees and deposits and continued strength in personal and commercial banking, wealth management and capital markets. The remainder is expected to come from credit normalization and capital optimization.

U.S. Banking and Capital Markets Priorities

The CFO said BMO’s U.S. banking business generated a 9.8% return on equity and a 17.3% return on tangible common equity in the third quarter. The U.S. banking return on equity improved 90 basis points year over year.

He attributed the progress to actions including a unified operating structure, core operating deposit growth, capital optimization, normalized provisions for credit losses, technology investments and talent upgrades. Transaction and payment services fees in the U.S. rose about 14% year over year, he said.

To reach BMO’s 12% U.S. banking return-on-equity target, Nalgirkar said the remaining progress is expected to be divided roughly evenly among fee growth, deposit growth, and other initiatives involving costs and capital allocation.

He added that the former Bank of the West operations have been fully integrated into BMO and are no longer operated as a separate brand. BMO is not prioritizing additional U.S. bank acquisitions or expansion into new geographic footprints, he said, as it focuses on lifting profitability in its existing U.S. operations.

In capital markets, BMO has generated nearly C$900 million in quarterly pre-provision, pre-tax income so far this year, according to Nalgirkar. He said 48% of capital-markets revenue comes from the U.S. and 41% comes from Canada. While markets have been constructive, he said the business’s results also reflect multiyear investments in talent, technology, product capabilities and geographic diversification.

Credit, Deposits and Margins

Nalgirkar said BMO entered the fourth quarter from a position of credit strength, citing a 69-basis-point reserve coverage ratio. Gross impaired loans fell to 97 basis points, down roughly four to five basis points sequentially, with improvements across commercial and consumer portfolios in both Canada and the U.S.

He said tariff-related direct exposures represented a manageable and immaterial portion of the portfolio. The bank is more focused on possible secondary effects of trade uncertainty on economic growth and unemployment. BMO expects impaired provisions in the fourth quarter to remain in the low-40-basis-point range, with a path toward the mid- to high-30s in 2027.

While reported total deposits were flat year over year, Nalgirkar said core operating deposits increased 8%. The bank had deliberately allowed U.S. certificates of deposit and Canadian term deposits to run off while loan growth was muted, he said. BMO’s focus remains on growing operating deposits and improving its deposit mix despite ongoing competition.

Looking ahead, Nalgirkar said net interest margins are expected to remain resilient, though the bank does not expect the same magnitude of expansion seen previously. BMO is prioritizing net interest income growth through loan growth and stable margins.

Capital and Technology Investments

BMO ended the third quarter with a 13% common equity tier 1 ratio and expects pending transactions to add about 50 basis points. Nalgirkar said the bank continues to view a 12.5% to 13% operating range as prudent, though it could operate slightly below the upper end if loan demand meets return thresholds or if it returns more capital to shareholders.

The bank is also investing in artificial intelligence tools to personalize customer experiences, support employees and automate processes. Nalgirkar cited an insurance underwriting tool, SmartDecision, that reduced underwriting time from weeks to minutes. He said AI-related benefits are currently weighted toward efficiency, with revenue opportunities expected to grow over time. BMO continues to target C$1 billion in pre-provision, pre-tax income benefits from these initiatives by 2030.

About Bank Of Montreal (NYSE:BMO)

Bank of Montreal, operating under the BMO Financial Group brand, is a diversified financial services company headquartered in Montreal, Quebec. Founded in 1817, it is one of Canada’s largest banks and serves individuals, businesses, institutions and governments through operations in Canada and the United States.

BMO’s personal and commercial banking businesses provide deposit accounts, mortgages, consumer lending, credit cards, investment products and financial planning services. The bank also offers commercial lending, treasury management and other banking solutions to businesses of various sizes.

Through BMO Wealth Management, the company provides investment management, private banking, financial planning and related advisory services.