Even as Canadian businesses prepare to reopen gradually this summer after a year of intermittent lockdowns, banks are wary about the prospects of a fast uptick in credit growth as an economic recovery remains patchy and cautious commercial clients hold on to record amounts of cash hoarded during the pandemic.
Canada‘s top six banks – Royal Bank of Canada, Toronto-Dominion Bank, Bank of Nova Scotia, Bank of Montreal, Canadian Imperial Bank of Commerce and National Bank of Canada – have emerged relatively unscathed from the pandemic, thanks to government support programs and their own loan deferrals.
As traditional lending to businesses dried up, the banks binged on mortgages on the back of a red-hot property market.
That resulted in the average mortgage balance at the six lenders hitting a record C$1.18 trillion ($978.5 billion) in the three months through April, up 9% from a year earlier, surpassing the pace seen during the 2017 housing market peak.
But mortgage growth is expected to slow, said Mike Clare, portfolio manager at Brompton Group, as a surge in home prices since last summer crimps affordability and stricter mortgage rules take effect.
That coupled with an uneven business recovery means Canadian banks’ core lending operations at home could see sluggish growth for much of this fiscal year.
“I am concerned about loan growth going forward,” said Edward Jones analyst James Shanahan. “There’s a fair amount of uncertainty in Canada about the strength and magnitude of the economic recovery due to repeated pandemic-related lockdowns.”
Business loan balances saw year-on-year growth of only 0.2% on average, albeit from a period when many companies drew down credit lines as debt markets seized up early in the coronavirus pandemic. But they grew only 2% to 3% over the past two quarters.
For investors who have driven up banks’ shares to record highs this year, the uncertain outlook may cause some angst. The Canadian bank index has rallied nearly 50% over the past year, versus a 31% increase in the broader index. But the bank index has underperformed the broader market since lenders began reporting results last week.
‘HISTORICAL LOWS’
“I would have expected … that (business) inventory and receivable build would have led to (credit) drawdowns, and you’re not seeing that,” Neil McLaughlin, head of personal and commercial banking at Royal Bank of Canada, said on an analyst call last week. “It’s already kind of lagging, but it will come.”
National Bank of Canadaexecutives said deposits were “stickier” than they had expected at the beginning of the pandemic, with businesses not spending all the cash they hold.
“Drawings on operating lines … are at historical lows,” said Stephane Achard, executive vice president of commercial banking and insurance at the bank. “I would expect those to remain low and gradually creep up over time.”
The six banks beat estimates for second-quarter profit, driven by lower-than-expected provisions for credit losses and strong capital market performances.
While earnings from capital markets businesses, which have “stepped up to fill the void in traditional banking businesses,” could moderate, they should remain strong, given continued volatility in markets and dealmaking, helping offset some of the lag in lending, Clare said.
($1 = 1.2059 Canadian dollars)
(Reporting by Nichola Saminather; Editing by Denny Thomas and Peter Cooney)
TORONTO – Strength in the base metal and technology sectors helped Canada’s main stock index gain almost 100 points on Friday, while U.S. stock markets also climbed higher.
The S&P/TSX composite index closed up 93.51 points at 23,568.65.
In New York, the Dow Jones industrial average was up 297.01 points at 41,393.78. The S&P 500 index was up 30.26 points at 5,626.02, while the Nasdaq composite was up 114.30 points at 17,683.98.
The Canadian dollar traded for 73.61 cents US compared with 73.58 cents US on Thursday.
The October crude oil contract was down 32 cents at US$68.65 per barrel and the October natural gas contract was down five cents at US$2.31 per mmBTU.
The December gold contract was up US$30.10 at US$2,610.70 an ounce and the December copper contract was up four cents US$4.24 a pound.
This report by The Canadian Press was first published Sept. 13, 2024.
OTTAWA – Statistics Canada says wholesale sales, excluding petroleum, petroleum products, and other hydrocarbons and excluding oilseed and grain, rose 0.4 per cent to $82.7 billion in July.
The increase came as sales in the miscellaneous subsector gained three per cent to reach $10.5 billion in July, helped by strength in the agriculture supplies industry group, which rose 9.2 per cent.
The food, beverage and tobacco subsector added 1.7 per cent to total $15 billion in July.
The personal and household goods subsector fell 2.5 per cent to $12.1 billion.
In volume terms, overall wholesale sales rose 0.5 per cent in July.
Statistics Canada started including oilseed and grain as well as the petroleum and petroleum products subsector as part of wholesale trade last year, but is excluding the data from monthly analysis until there is enough historical data.
This report by The Canadian Press was first published Sept. 13, 2024.
TORONTO – Canada’s main stock index was up more than 150 points in late-morning trading, helped by strength in the base metal and energy sectors, while U.S. stock markets were mixed.
The S&P/TSX composite index was up 172.18 points at 23,383.35.
In New York, the Dow Jones industrial average was down 34.99 points at 40,826.72. The S&P 500 index was up 10.56 points at 5,564.69, while the Nasdaq composite was up 74.84 points at 17,470.37.
The Canadian dollar traded for 73.55 cents US compared with 73.59 cents US on Wednesday.
The October crude oil contract was up $2.00 at US$69.31 per barrel and the October natural gas contract was up five cents at US$2.32 per mmBTU.
The December gold contract was up US$40.00 at US$2,582.40 an ounce and the December copper contract was up six cents at US$4.20 a pound.
This report by The Canadian Press was first published Sept. 12, 2024.
