(Reuters) - Canadian Imperial Bank of Commerce reported a rise in fourth-quarter profit on Thursday, as the lender set aside smaller rainy-day funds to cover potential loan losses.

As the country's central bank continues to lower interest rates and household budgets improve due to an easing cost of living crisis, banks are likely to benefit from stabilizing credit quality and declining default rates.

Provisions for credit losses, or the capital banks set aside to cover debt that is either unlikely to be repaid or have delayed repayments, came in at C$419 million, down 22.5% from the same quarter last year.

Canadian lender Bank of Nova Scotia also reported a decline in rainy-day funds in the fourth quarter earlier this week. In contrast, Royal Bank of Canada and National Bank both recorded higher provisions in the reported quarter.

Analysts anticipate the banking sector will adopt a cautious approach to provisioning in the near term and into the first half of 2025, driven by persistent economic uncertainty and mixed economic indicators.

CIBC's adjusted net income rose to C$1.89 billion ($1.34 billion), or C$1.91 per share, in the three months ended Oct. 31, from C$1.52 billion, or C$1.57 per share, a year earlier.

($1 = 1.4055 Canadian dollars)

(Reporting by Jaiveer Singh Shekhawat in Bengaluru; Editing by Pooja Desai)