How Canada's banks are preparing for an economic downturn
From boosting cash on hand to cutting staff, Canadian banks are taking a variety of strategies to prepare for a widely expected economic slowdown in the year ahead.
Banks outlined some of their approaches in their fourth quarter results this week, which saw executives strike notes of caution because of the variety of economic pressures, while still committing to a push for growth.
"As we look ahead to 2023, global economic growth is expected to be slower as central banks continue with their monetary policy tightening to tame inflation," said CIBC chief executive Victor Dodig on an earnings call.
"In response to these headwinds ... we are going to continue to take actions to reposition our business to adjust to these new realities."
Expenses jumped for CIBC in the quarter in part from severance costs as it "repositioned the business" for the changing outlook, said chief financial officer Hratch Panossian.
RBC, which announced a $13.5-billion deal to buy HSBC Bank Canada this week, said it was rolling out a two per cent discount to its dividend reinvestment plan, a move meant to boost capital and which the bank expects to add about $2 billion to its coffers.
The bid to boost capital is part of a conservative approach amid higher risk of unlikely but severe economic events, brought on in part by significant geopolitical instability, said chief executive Dave McKay on an earnings call.
"You have higher tail risk right now," said McKay. "And therefore, we're building a little bit of a capital buffer for uncertainty."
BMO, which expects to shortly close its US$16.3 billion acquisition of Bank of the West that will put some pressure on its capital buffers, said it is using similar risk transfer transactions to what it has been doing in recent years, including loan syndication and synthetic securitization.
"We'll continue to dynamically manage our capital and resources," said chief executive Darryl White. "We do see a little bit of slowing down."
BMO's chief financial officer Tayfun Tuzun said the bank is so far not cutting back on any business segments because of uncertainty.
"We had very strong loan growth during the quarter. Obviously, that should be a proof that we're still doing all the business with our clients that we have," he said on their earnings call.
TD has a "downturn readiness playbook" that it continues to update, but for now it's more focused on growth, said chief financial officer Kelvin Tran in an interview.
"You have to invest for growth, and in a potential downturn, you're just more selective on what you invest. But it is important to drive growth."
He said the bank, which saw expenses up about 10 per cent in the quarter from last year, is investing to be ready for clients in the uncertainty ahead.
"We're putting more bankers on the street, more advisors on the street to help our customers as you know, it's a very challenging environment and want to be there for them."
Scotiabank's chief risk officer Phil Thomas said that the bank's efforts to de-risk its portfolio have positioned it well to manage economic uncertainties, while chief executive Brian Porter said he expects rate pressure to soon ease.
"Central banks in Canada and the United States appear to be nearing the end of their tightening cycles as inflation finally appears to be slowing. In Canada, the economic growth is moderating, but economic levels of activity remained robust."
While some banks are more optimistic than others on the economic outlook, they did all boost what they're setting aside for potential loan losses. There was a wide range in provisions, from $617 million at TD on the top end to $226 million at BMO, with variances coming from portfolio size, outlook, and other factors.
RBC added $381 million to provisions, including $126 million on performing loans, as its sees economic trouble coming a little faster and more intense than before, said chief risk officer Graeme Hepworth.
"Provisions on performing loans this quarter reflect changes to our base case scenario. This incorporated an earlier and modestly more severe recession than previously expected."
This report by The Canadian Press was first published Dec. 1, 2022.
opinion | How much rent can you afford?
Many Canadians have continued to see an increase in their rental rates in 2023. In an column on CTVNews.ca, personal finance contributor Christopher Liew explains how to calculate how much rent you can afford.
With the spring break travel season approaching, those looking to flee the cold, wet Canadian snow for sunnier skies will likely be met with a hefty price tag for their getaway, with inflation and increased demand pushing costs up.
When selling a home, Canadians may be exempted from paying capital gains tax on a residential property -- if it's their principal residence. On CTVNews.ca, personal finance contributor Christopher Liew explains what's determined as a principal residence, and what properties are eligible for the exemption.
The Bank of Canada hiked its key interest rate by a quarter of a percentage point Wednesday, bringing it to 4.5 per cent. Here's a look at what the rate means, how analysts are interpreting it and what it could mean for consumers.
The federal government's latest TFSA contribution limit increase took effect as of January 1, 2023. Personal finance contributor Christopher Liew outlines how the government’s most recent TFSA contribution limit increase affects you and how to make the most of it.
Finding an affordable place to live in the territories, where housing has long been a challenge, is getting even harder, the Canada Mortgage and Housing Corporation suggested in a report released in December. In Yellowknife, the report said, the growing senior population, urbanization and strong labour market has pressured the housing supply.
Canada is suffering from a severe skills shortage in several key sectors, experts say, thanks to factors that include deficiencies in our education system as well as changing demographics. CTVNews.ca looks at some of the skills that will be most in-demand in 2023.
Bond portfolios took a beating in 2022 as interest rates climbed, but experts say investors shouldn't neglect bonds this year as the Bank of Canada nears the end of its rate hike cycle.