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As consumers open their wallets, the surge is pushing businesses to borrow and invest to meet that demand, which has helped drive up fees and interest income collected by banks.Christopher Katsarov/The Canadian Press
Rebounding consumer spending and business investment are boosting profits for three of Canada’s largest banks as customers travel and dine out more often, and bankers expect that growth to continue – perhaps at a more moderate pace – even amid mounting fears of an economic downturn.
Royal Bank of Canada and Toronto-Dominion Bank both reported profits for the fiscal second quarter ended April 30 that beat estimates, while Canadian Imperial Bank of Commerce’s earnings fell short of expectations as its costs swelled. All three banks saw revenue and loan balances in their core Canadian retail and business banking operations post strong gains compared with a year earlier.
As consumers open their wallets, the surge is pushing businesses to borrow and invest to meet that demand, which has helped drive up fees and interest income collected by banks.
But a key question confronting banks Thursday was whether the trend will continue in the face of high inflation, rapidly rising interest rates and growing gloom about the prospects for an economic downturn. Investors and analysts are on edge about whether demand for loans could wane and defaults on existing loans might rise if economies swing toward a recession.
The banks say their clients are still upbeat and the fundamentals that underpin retail banking look strong enough to withstand some economic headwinds.
“It feels like there’s certainly some more caution out there,” said Hratch Panossian, CIBC’s chief financial officer, in an interview. “But at this point in time, on the ground with our clients, there’s still a relatively high level of confidence and relatively high level of activity as the economy has opened up, the services sectors are coming back.”
On Wednesday, Bank of Nova Scotia and Bank of Montreal both reported higher second-quarter profits and rising loan balances, and executives from both banks offered optimistic outlooks for the financial sector.
There are two key factors bolstering banks’ confidence: a tight labour market that has Canada’s unemployment rate at its lowest level in decades, and the financial buffer many customers built during the COVID-19 pandemic in the form of higher savings and lower debt.
As public health restrictions lifted, spending came roaring back. Credit and debit transactions by RBC customers were 30-per-cent higher in April than before the pandemic, and that momentum carried into May, said chief executive officer Dave McKay. TD’s credit card retail sales were up 22 per cent year over year, according to Mr. Tran. And at CIBC, purchase volumes on cards were up 30 per cent from a year earlier, excluding the bank’s newly acquired portfolio of Costco-branded credit cards.
“We have seen, I’m going to say, full recovery in the categories that are travel, hotel, entertainment,” said Laura Dottori-Attanasio, CIBC’s head of personal and small business banking, on a Thursday conference call.
That spending could come under pressure as inflation and rising interest rates push up prices and borrowing costs for customers. “It’s definitely going to eat into their discretionary income … and consumers then need to make choices,” said Kelvin Tran, TD’s chief financial officer, in an interview.
“But I think for the consumer, what is a very important factor is the unemployment rate,” Mr. Tran said. “If people are gainfully employed and we continue to see the [labour] market continues to be very tight, that increases confidence.”
Many customers also have more financial breathing room in the form of lower debts from personal loans, as well as higher savings. At CIBC, use rates on lines of credit are about 20-per-cent lower than in 2019, and the rate of revolving credit card balances is down between 7 and 10 per cent.
“We’re feeling really good about the health of the consumer,” Ms. Dottori-Attanasio said. “We’re seeing very prudent behaviour when it comes to how people are managing their debt and how they’re making payments on their credit cards.”
Though bankers are confident their customers are resilient, they are still struggling to predict how the economy will react to rapidly rising interest rates. Central bankers “have to hit demand really hard” to tamp down inflation, Mr. McKay said. “Do we land it with a slight recession? I think our message today is it could go either way, it’s 50-50. Having said that, … there are good shock absorbers to absorb that uncertainty.”
In the fiscal second quarter, RBC earned $4.25-billion, or $2.96 a share, compared with $4-billion, or $2.76 a share, a year earlier. On an adjusted basis, RBC said it earned $2.99 a share, beating an estimate of $2.71, according to Refinitiv.
TD reported net income of $3.8-billion, or $2.07 a share, helped by a one-time boost of $224-million stemming from a lawsuit settlement. TD’s adjusted earnings amounted to $2.02 a share, down slightly from the year prior but ahead of the consensus analysts’ prediction of $1.93 a share.
And CIBC earned $1.52-billion, or $1.62 a share, compared with $1.65-billion, or $3.55 a share, in the same quarter last year – before the bank completed a 2-for-1 share split. CIBC said it earned $1.77 a share on an adjusted basis, just below analyst estimates of $1.80 a share.
RBC raised its quarterly dividend by 8 cents a share to $1.28, and CIBC increased its dividend by 2.5 cents a share to 83 cents.
RBC and TD continued to unwind large loan loss reserves they stockpiled to guard against the possibility COVID-19 could cause losses to swell. RBC recovered $342-million in provisions for credit losses in the quarter. TD earmarked just $27-million in total new provisions, while releasing some other reserves as loans are being paid back.
Executives at both banks said their expectations for credit are more optimistic now that pandemic-related risks have receded. But each bank also plugged more pessimistic assumptions into models they use to predict future losses, acknowledging the odds of some sort of economic downturn are rising.
“Omicron didn’t have a big impact on [provisions] so that was a favourable factor in this quarter,” Mr. Tran said. “And then you added something that is less favourable, which is this uncertainty, this outlook.”
With a report from Tim Kiladze
Editor’s note: Hratch Panossian’s title has been corrected in the online version of this story.
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Alberta’s minister of forestry and parks said the RCMP national security investigation team is involved in a probe looking into what caused a pipeline to rupture and catch fire west of Edmonton earlier this week.
On Tuesday, a wildfire was sparked following a natural gas pipeline rupture about 40 kilometres northwest of Edson, Alta. The fire has since been deemed under control.
“We have no indication of any kind of cause on that fire yet; the investigation is happening,” Forestry and Parks Minister Todd Loewen said at a wildfire-related news conference Thursday morning. “The national security investigation team of the RCMP are investigating the cause.
“My understanding, since the cause was unknown, that’s standard practice for them to come in on anything that’s unknown.”
RCMP said as of Tuesday, initial reports had shown no signs of foul play.
Global News has reached out to the RCMP for more information. On its website, the RCMP states it has a wide range of national security-related mandates and responsibilities. It says its national security criminal investigations program involves critical infrastructure protection and critical incident management.
Officials say the investigation into what caused the TC Energy pipeline to break could take months or even years.
The Canada Energy Regulator had investigators on site on Wednesday. The Transportation Safety Board of Canada is also investigating the incident.
The rupture sparked a blaze that could be seen for kilometres, sending large flames and plumes of smoke into the air.
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No injuries were reported, and officials said the fire was never a threat to any surrounding communities.
“I want to commend the Yellowhead County Fire Department, industry and our wildfire team for the timely manner that this fire was brought under control,” Loewen said Thursday.
“Fast information sharing between all parties facilitated an effective wildfire response.”
The wildfire sparked by the pipeline rupture is located about 28 kilometres northeast of Obed Lake. More than 30 firefighters were expected to be in the area Thursday to continue working on the wildfire.
— with files from The Canadian Press
— more to come…
© 2024 Global News, a division of Corus Entertainment Inc.
A St. John’s woman says she won’t be paying many more visits to Tim Hortons, after an email from the coffee chain led her to believe that she’d won a new boat — when she hadn’t won anything at all.
“I go to Tim’s quite a lot, seven days a week. I’m afraid now that’s going to change to no days a week,” Carol Evans told CBC News on Thursday.
Evans said she received an email from Tim Hortons on Wednesday afternoon while on a break from her work as an licensed practical nurse.
The email recapped the prizes she’d won in the annual Roll Up the Rim to Win contest, but there was one extra prize included — a brand new boat and trailer, valued at about $55,000.
Unfortunately, the excitement was over by the time she got home from work.
“I was just so excited, really excited. I thought I really won a boat and a trailer, $55,000 worth, and to find out at five to six, I had an email from them come in telling me it was a technical error,” she said.
“I don’t get my boat and I don’t get my trailer.”
Carol Evans of St. John’s was elated when she got an email from Tim Hortons saying she won $55,000 worth of prizes. Another email from the coffee giant a few hours later, telling her it was an error, had her crushed — and fuming.
Evans said her win was the talk of her co-workers.
“I work with about a hundred people in the run of a day, and more than that outside the OR, and everybody was so happy for me. They couldn’t believe it, I finally won something in my life,” she said.
“But to find out a few hours later I didn’t, it was disappointing, very disappointing.… I cried, it was so sad.”
Although she may not have taken it out on the water, Evans said winning would have meant a lot to her, like helping fund her retirement after more than five decades in nursing.
“I could have sold the boat and trailer and had some money, paid off some bills, probably could have, who knows, retired after 55 years of work,” she said.
In an emailed statement to CBC News on Thursday, Tim Hortons said the message was meant to show what each customer won over the course of the contest — and the boat was included by mistake.
“We developed a Roll Up To Win recap email message with the best intentions of giving our guests a fun overview of their 2024 play history.
“Unfortunately there was a human error that resulted in some guests receiving some incorrect information in their recap message.”
The company didn’t disclose how many people across the country received the email, but CBC News spoke to another person in western Newfoundland who got it.
Others in Edmonton, Hamilton and Brampton, Ont., were also told they’d won the boat.
By Wednesday afternoon, a Facebook group had formed with more than 200 people expressing outrage about the mistake and threatening to file lawsuits.
Tim Hortons sent the affected customers a letter, telling them to disregard that winning email and that it was sent as a result of “technical errors.”
“Unfortunately, some prizes that you did not win may have been included in the recap email you received. If this was the case, today’s email does not mean that you won those prizes,” the letter read.
“We apologize for the frustration this has caused and for not living up to our high standards.”
It’s a familiar story for Tim’s, however, as last year, its app mistakenly informed users they’d won $10,000.
Evans said two years of big mistakes just isn’t fair. She’d like to see Tim Hortons move away from the Roll Up to Win smartphone app and back to paper cups.
“It’s not fair to the public who spend their hard-earned money to go into Tim’s and buy their coffee every day, buy their lunch, and then think they won a prize and all of a sudden you learn, three hours later, you didn’t win a prize, and it’s not fair.”
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The new regulations will take effect in Bowen Island, Tofino, Pemberton and 14 other communities on Nov. 1
Published Apr 18, 2024 • Last updated 2 hours ago • 5 minute read
With less than two weeks before B.C.’s short-term rental restrictions take effect, visitors staying at an Airbnb, Vrbo or other short-term rental homes are told to check with their hosts to make sure they are not staying in illegal accommodations.
Guests should ask hosts if they are compliant with the new rules, said B.C.’s housing minister, even as he reassured guests they won’t be on the hook.
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“The responsibility to comply with the rules fall with the hosts and the short-term rental platforms,” said Ravi Kahlon at a news conference with Premier David Eby in Langley on Thursday. “We encourage people to continue to explore beautiful British Columbia, and stay in legal short-term rental accommodations.”The new regulations set to take effect on May 1 would restrict short-term rentals to principal residences and either a secondary suite or a laneway home/garden suite on the property.
They apply to more than 60 B.C. communities with populations of more than 10,000 people, as well as 17 smaller communities, including Bowen Island, Tofino, Osoyoos, Pemberton, and Gabriola Island, which have decided to opt in. For these communities, the rules will take effect on Nov. 1.
The new legislation carries penalties of $500 to $5,000 a day per infraction for hosts and reach as high as $10,000 a day for platforms.
Eby said the province’s principal residence requirement is meant to crack down on speculators while allowing homeowners to rent out spaces in their principal residences if they choose to do so.
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He acknowledged the restrictions could put some property owners’ investment and retirement plans into disarray, but made no apologies, saying people with money to invest should put their money elsewhere.
“Do not compete with individuals and families who are looking for place to live with your investment dollars,” Eby said, adding the government will “tilt the deck every single time toward that family.”
The government has set up a provincial enforcement unit, currently staffed by four people, to conduct investigations into alleged non-compliant units.
The enforcement will be largely done digitally and includes the use of a short-term rental data portal that’ll help local governments monitor and enforce regulations.
Municipalities with their own short-term rental restrictions can upload non-compliant properties to the portal, said Kahlon. Platforms will have five days to verify whether the units are on their sites. Local governments without short-term rental licensing can report properties they believe are not compliant.
The platforms will be required to remove non-compliant listings at the request of local or the provincial governments and provide the province with a monthly update of short-term listings on their sites, said Kahlon.
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Companies such as Expedia and Booking.com are working to get ready for the new rules, and he’s hopeful other platforms will follow suit by May 1.
Airbnb said it has been in discussions with the provincial government for months and plans to comply with the new rules, but predicts they will harm the province’s tourism sector by taking extra income away from residents and limiting accommodation options for people, while doing little to improve the housing crunch for residents.
“They’re doing this because they say there’s going to be an impact on housing, that this will free up more housing for people,” said Nathan Rotman, Airbnb’s policy lead in Canada. “That is just not true.”
Despite several years of Airbnb restrictions in Vancouver, for example, rents have gone up while vacancies stayed low, he said.
Kahlon said the pending rules are already having a positive impact on housing availability with short-term rentals being converted to long-term use or being put up for sale.
In March, more than 19,000 entire homes in B.C. were listed as short-term rentals for most of the year, said the province. Even if half of those units are returned to the long-term market, that’ll make a “substantial difference” in communities, said Kahlon.
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Eby said there has been a “massive upswing” in hotel construction in key tourist areas as an unintended result of the new policies.
Bowen Island, a small community of 4,200 whose council voted in March to opt into the province’s short-term rental regulations, has seen increased pressure from tourists and housing demand in recent years.
The decision was council’s way “to balance what is appropriate use in residentially-zoned neighbourhoods while still allowing property owners to still do what they want with their properties,” said Mayor Andrew Leonard.
The principal residence requirement still allows for Airbnb and other short-term rentals on the island, he pointed out. “The vast majority of short-term rental operations are unaffected. This just keeps it in the homes of homeowners instead of speculators.”
Some communities, including Parksville’s Resort Drive area, were granted an exemption last month under the province’s exemption for strata hotel or motels. The area was purpose-built as tourism accommodation more than two decades ago.
The new legislation is being challenged in B.C. Supreme Court by Victoria-based groups and the Westcoast Association for Property Rights, who are calling for a review of the new rules and compensation for financial losses.
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According to Airbnb, Airbnb bookings and related spending generated around $2.5 billion in B.C. in 2023 and created 25,000 jobs.
The company says that for every $100 spent on an Airbnb booking, guests also spent about $229 on other travel spending.
More than three quarters of hosts polled by the company say they use their Airbnb earnings to cover rising costs of living, especially housing.
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