The Canadian Press

Canada’s five biggest banks saw their profits soar by nearly two-thirds in the first quarter of 2010 compared to the same period a year before when the recession had battered away at earnings.

The banks earned a combined $5.09 billion in the three months ended Jan. 31, compared to $2.97 billion in 2009, helped by lower loan losses and a resurgence in mortgages.

Scotiabank (TSX:BNS) was the final bank to report earnings on Tuesday, posting a 17% rise in profit to $988 million and beating analyst estimates.

Most of the banks came out with profits higher than Bay Street had expected, with Scotiabank, Bank of Montreal (TSX:BMO), TD Bank (TSX:TD), and CIBC (TSX:CM) all beating estimates.

Royal Bank (TSX:RY) was the sole exception that missed expectations, even though Canada’s largest bank posted the highest profit at $1.5 billion.

The results provided further reason for optimism in a banking industry that has fared better than those in most other countries. Canada’s banking sector is considered one of the least affected by the 2008-09 credit crisis.

Craig Fehr, a financial services analyst with Edward Jones in St. Louis, said that the earnings provided early signs that loans are starting to stabilize.

“We’re seeing a deceleration in the pace of impaired loan growth – meaning that less loans are going bad now relative to the past several quarters,” he said.

It is “a welcome sign for the Canadian banks because the relief that’s going to come from declining credit loss provisions over time will serve to unlock a lot of the earning power.”

However, the banks aren’t necessarily in a safety zone, and could still see their results impacted if the markets begin to weaken later this year, rather than continue to recover, as expected. If the economy hits another wall then job losses could escalate, causing more Canadians to miss loan payments.