Canada’s biggest banks will report their quarterly financial results this week, and analysts say they will be listening for hints as to how bank executives view the economic recovery from COVID-19.
John Aiken, head of research (Canada) at Barclays, says that Canadian bank leaders will likely give analysts insight on how the economy is recovering in different sectors, such as mortgage borrowing, credit card spending and small business loans.
“With the housing market doing exceptionally well, this is the one area where we are hoping to see growth. Obviously, the executives have a much better visibility in terms of what to expect moving forward,” he said in an interview.
“The flip side of the coin is, with the economy largely in lockdown, individuals are not spending on nearly as much, and we’re actually seeing credit card balances declining … The other area that I’m particularly interested in seeing is the commercial loan book. What businesses are growing and expanding? Which ones are not doing as well?”
Analysts optimistic
Scotiabank and BMO kick off bank earnings on Tuesday, while RBC and National Bank will report on Wednesday, followed by CIBC and TD Bank Group on Thursday.
Aiken expects the banks to post “solid” quarterly financial results, despite the ongoing COVID-19-related lockdowns. A potentially “buoyant” auto loans business could help banks that are active in personal loans, says Robert Colangelo, senior vice-president of the global financial institutions group at DBRS Morningstar.
Colangelo says the banks’ wealth management businesses will be something to watch in Canada as well, with the capital markets being “strong” and client portfolios potentially growing through market volatility, which could benefit banks through higher fees.
Goldman Sachs — which has more exposure to wealth management and investment banking and less exposure to consumer and business loans compared with other U.S. banks like Citigroup, JPMorgan Chase and Wells Fargo — said last month its profits more than doubled year-over-year in its latest quarter.
One key trend out of the U.S. has been banks releasing allowances for loan losses, wrote Gabriel Dechaine, National Bank of Canada Financial Markets analyst, in a research note after U.S. bank earnings last month. Last year, banks across the world set aside funds in the early stages of the pandemic, preparing for an economic downturn that could drive borrowers to default.
But Aiken says that Canadian banks are likely to take a more conservative approach than U.S. banks, in part because of different accounting regimes.
“If they are releasing the allowances, it’s a signal and an indicator that the economy is going to do better than what had originally been considered,” said Aiken.
“That would be a good sign. But also, what it means is that the allowances that were taken are going to be released back into earnings, and then will boost net income.”
‘Who can squeeze out [the] most growth?’
The Office of the Superintendent of Financial Institutions said in December that Canadian banks and insurers should not increase regular dividends, buy back shares or raise executive compensation, noting that “while conditions seem stable now, the financial impacts of the COVID-19 pandemic are yet to be fully realized.”
While it’s unlikely that investors will see much in the way of dividend hike updates, Aiken says Bay Street will be looking to see how the banks not only weather the pandemic and keep costs at bay, but create areas of new growth, such as operations in the U.S. or Latin America.
Of the big six Canadian banks, says Aiken, “who can squeeze out [the] most growth, and how repeatable is that?”
“That is my focus and I believe that is the focus that investors have, as well.”
OTTAWA – Canada’s unemployment rate held steady at 6.5 per cent last month as hiring remained weak across the economy.
Statistics Canada’s labour force survey on Friday said employment rose by a modest 15,000 jobs in October.
Business, building and support services saw the largest gain in employment.
Meanwhile, finance, insurance, real estate, rental and leasing experienced the largest decline.
Many economists see weakness in the job market continuing in the short term, before the Bank of Canada’s interest rate cuts spark a rebound in economic growth next year.
Despite ongoing softness in the labour market, however, strong wage growth has raged on in Canada. Average hourly wages in October grew 4.9 per cent from a year ago, reaching $35.76.
Friday’s report also shed some light on the financial health of households.
According to the agency, 28.8 per cent of Canadians aged 15 or older were living in a household that had difficulty meeting financial needs – like food and housing – in the previous four weeks.
That was down from 33.1 per cent in October 2023 and 35.5 per cent in October 2022, but still above the 20.4 per cent figure recorded in October 2020.
People living in a rented home were more likely to report difficulty meeting financial needs, with nearly four in 10 reporting that was the case.
That compares with just under a quarter of those living in an owned home by a household member.
Immigrants were also more likely to report facing financial strain last month, with about four out of 10 immigrants who landed in the last year doing so.
That compares with about three in 10 more established immigrants and one in four of people born in Canada.
This report by The Canadian Press was first published Nov. 8, 2024.
The Canadian Institute for Health Information says health-care spending in Canada is projected to reach a new high in 2024.
The annual report released Thursday says total health spending is expected to hit $372 billion, or $9,054 per Canadian.
CIHI’s national analysis predicts expenditures will rise by 5.7 per cent in 2024, compared to 4.5 per cent in 2023 and 1.7 per cent in 2022.
This year’s health spending is estimated to represent 12.4 per cent of Canada’s gross domestic product. Excluding two years of the pandemic, it would be the highest ratio in the country’s history.
While it’s not unusual for health expenditures to outpace economic growth, the report says this could be the case for the next several years due to Canada’s growing population and its aging demographic.
Canada’s per capita spending on health care in 2022 was among the highest in the world, but still less than countries such as the United States and Sweden.
The report notes that the Canadian dental and pharmacare plans could push health-care spending even further as more people who previously couldn’t afford these services start using them.
This report by The Canadian Press was first published Nov. 7, 2024.
Canadian Press health coverage receives support through a partnership with the Canadian Medical Association. CP is solely responsible for this content.
As Canadians wake up to news that Donald Trump will return to the White House, the president-elect’s protectionist stance is casting a spotlight on what effect his second term will have on Canada-U.S. economic ties.
Some Canadian business leaders have expressed worry over Trump’s promise to introduce a universal 10 per cent tariff on all American imports.
A Canadian Chamber of Commerce report released last month suggested those tariffs would shrink the Canadian economy, resulting in around $30 billion per year in economic costs.
More than 77 per cent of Canadian exports go to the U.S.
Canada’s manufacturing sector faces the biggest risk should Trump push forward on imposing broad tariffs, said Canadian Manufacturers and Exporters president and CEO Dennis Darby. He said the sector is the “most trade-exposed” within Canada.
“It’s in the U.S.’s best interest, it’s in our best interest, but most importantly for consumers across North America, that we’re able to trade goods, materials, ingredients, as we have under the trade agreements,” Darby said in an interview.
“It’s a more complex or complicated outcome than it would have been with the Democrats, but we’ve had to deal with this before and we’re going to do our best to deal with it again.”
American economists have also warned Trump’s plan could cause inflation and possibly a recession, which could have ripple effects in Canada.
It’s consumers who will ultimately feel the burden of any inflationary effect caused by broad tariffs, said Darby.
“A tariff tends to raise costs, and it ultimately raises prices, so that’s something that we have to be prepared for,” he said.
“It could tilt production mandates. A tariff makes goods more expensive, but on the same token, it also will make inputs for the U.S. more expensive.”
A report last month by TD economist Marc Ercolao said research shows a full-scale implementation of Trump’s tariff plan could lead to a near-five per cent reduction in Canadian export volumes to the U.S. by early-2027, relative to current baseline forecasts.
Retaliation by Canada would also increase costs for domestic producers, and push import volumes lower in the process.
“Slowing import activity mitigates some of the negative net trade impact on total GDP enough to avoid a technical recession, but still produces a period of extended stagnation through 2025 and 2026,” Ercolao said.
Since the Canada-United States-Mexico Agreement came into effect in 2020, trade between Canada and the U.S. has surged by 46 per cent, according to the Toronto Region Board of Trade.
With that deal is up for review in 2026, Canadian Chamber of Commerce president and CEO Candace Laing said the Canadian government “must collaborate effectively with the Trump administration to preserve and strengthen our bilateral economic partnership.”
“With an impressive $3.6 billion in daily trade, Canada and the United States are each other’s closest international partners. The secure and efficient flow of goods and people across our border … remains essential for the economies of both countries,” she said in a statement.
“By resisting tariffs and trade barriers that will only raise prices and hurt consumers in both countries, Canada and the United States can strengthen resilient cross-border supply chains that enhance our shared economic security.”
This report by The Canadian Press was first published Nov. 6, 2024.
