Canadian banks are scheduled to reveal their performance in the period leading up to a potential recession, as they will announce quarterly earnings this week.

With central banks raising interest rates to slow inflation, economic concerns have led to a decline in bank stocks compared to the market as a whole, so analysts will be looking to see how well the sector is prepared before an expected slowdown next year.

Starting with Scotiabank's report on Tuesday, the results will cover the three months ending October 31. During that period, the Bank of Canada raised its key interest rate twice, reaching 3.75 percent, as the central bank is expected to raise interest rates again in its final decision for this year on December 7.

The key questions for analysts will also be about how much banks earn from their loans, which is measured in one way by the net interest margin, and what the chances are that some will be unable to repay these loans, measured by the amount of money the banks provide.

The core lending business has become more important in recent quarters as the hit to the stock market has led to a decline in wealth management profits while capital markets business, represented by fundraising for companies, has slowed due to economic concerns.

Interest rate rises have also been a major source of pressure on stocks, although November has shown good gains so far. Interest rates also slowed the real estate market and demand for mortgages, with home sales down 36 percent in October compared to the previous year, but banks have also been able to profit from those higher rates as shown by net interest margins.

In the same regard, Gabriel Decaigne, an analyst at National Bank, said in a note: "Margin expansion has been one of the most exciting developments in banking, partially offsetting recession fears."

Mini Grumman, an analyst at Scotiabank, also said in a note that provisions for potential bad loans will be another differentiator, especially since complex accounting rules make these measures a continuing source of variable analyst consensus versus analyst consensus.

Financial barriers have begun to creep in the last quarter after an extended group of banks ended what was created during the first part of the pandemic. Grumman said that while they are likely to rise further this quarter, this is not a sign of concerns about credit conditions. He pointed to the recent jobs report that showed a strong recovery in employment after a slow summer and a boom in wage growth as strong support for the economy and bank performance.

Since this is the last quarter of the year, analysts will also push to see how banks view the performance of these key trends next year, according to RBC analyst Darko Mihelic in a note, adding that earnings per share will likely decline slightly from the third quarter but will rise year-over-year with strong loan growth compared to last year despite the decline in mortgages as commercial loans remained strong.

For next year, Mihelic said he cautiously expects earnings per share growth of 2.2 percent, rising to 4.4 percent in 2024 as loan growth resumes and other factors stabilize.