Jefferies analysts argue that Canada's major banks are early leaders in institutional adoption of artificial intelligence and that the benefits are starting to show up in the financials. In a note released Tuesday, the firm quantified the potential for improved operating efficiency and tied those gains directly to earnings upside.
Specifically, Jefferies projects that the sector could achieve an incremental 50 to 75 basis point improvement in efficiency over the next several years. The bank also highlighted additional upside - described as more than 130 basis points - that Jefferies considers not fully priced into current consensus estimates.
The analysis draws on recent quarterly results. Jefferies noted that Q1-26 reporting displayed broad-based productivity improvement across Canadian lenders. Using its modelling, the firm estimates that a 50 basis point incremental efficiency gain would translate into an average lift to earnings of 130 basis points.
Several Canadian institutions have publicly set AI and automation targets that, if achieved, would at least match the assumptions Jefferies used in its scenario work. Toronto-Dominion Bank is aiming for $500 million of improvements attributed to AI and automation on both the revenue and expense sides - a combined figure that exceeds the threshold Jefferies identified for its target efficiency improvement.
Royal Bank of Canada has outlined a goal of generating between $700 million and $1 billion in enterprise value from AI-related benefits by 2027. TD has stated a broader $1 billion target tied directly to AI initiatives, with that amount split evenly between annualized cost savings and revenue uplift.
Jefferies singled out individual institutions in its write-up. The firm identified Royal Bank of Canada as a likely beneficiary of its AI investments, citing the bank's early-adopter status and cumulative spending even though RY already posts a relatively strong efficiency ratio. TD's explicit AI-related targets also drew attention from Jefferies, which noted that remediation work tied to U.S. anti-money-laundering (AML) requirements is driving incremental investment and innovation that could be applied more broadly across geographies and business segments.
Canadian Imperial Bank of Commerce was highlighted for having been an aggressive technology spender over the past five years. Jefferies pointed to the bank's notable productivity improvement in Q1-26 as evidence that CIBC has made meaningful progress in turning technology investment into return on investment, effectively leapfrogging peers in measured productivity gains.
Jefferies also referenced external measures of Canadian banks' AI positioning, noting that five Canadian banks appeared among the top 30 global banks in Evident AI's 2025 ranking. The firm said the group is moving from pilot projects toward enterprise-wide adoption of AI capabilities.
Overall, Jefferies presents a view that ongoing AI and automation efforts across the Canadian banking sector can generate notable efficiency and earnings benefits, while also suggesting that some of the potential upside may not yet be fully incorporated into market expectations.