In the past two weeks, Canada’s six largest banks have reported quarterly profits totalling C$4bn (US$3.8bn), spurring bank executives and analysts to predict a once-in-a-decade opportunity for international growth.
The last of the banks to report earnings, the Bank of Nova Scotia, said yesterday that it had nearly trebled net profits in the quarter ending October 31 to C$902m.
Buoyed by the profits and their well-capitalised position, Canada’s six largest banks – Royal Bankof Canada, Toronto-Dominion, Bank of Nova Scotia, Bank of Montreal, Canadian Imperial Bank of Commerce and the National Bank of Canada – are looking to take a more aggressive approach to global expansion.
“It’s a once-in-a-decade opportunity for growth,” Bill Downe, Bank of Montreal’s chief executive, told the Financial Times.
Big acquisitions are unlikely before there is greater clarity on the creation of global capital standards. In the meantime, Canadian banks and insurers are hoarding funds in preparation for growth opportunities.
The conservative banking culture could put Canada ahead of banks elsewhere, analysts say. Canada’s heavily regulated, retail banking-focused finance sector will be among the best prepared for stricter regulations.
“Whatever those new standards are, we are confident we are well positioned,” Gordon Nixon, Royal Bank of Canada’s chief executive, said in a conference call with analysts.
Canadian banks are among the best capitalised. Rules require them to maintain a tier one capital ratio of at least 7 per cent. The big six have ratios ranging from 10.7 per cent at Scotia and the National Bank of Canada to 13 per cent at Royal Bank.
Canadian banks did not escape the turmoil un-scathed. Combined annual profits fell nearly a third in 2008 and they have taken billions of dollars of writedowns on toxic securities and troubled loans. But all except one, CIBC, recorded a profit in 2008 and all have survived without infusion of government money.
In a report entitled “The New Golden Age of Canadian Banking”, analyst Peter Rozenberg of UBS Securities Canada wrote: “Are Canadian banks smarter? Perhaps, but the main point is that the economic backdrop is better, the competitive environment is better, bank regulation is stronger and asset mix has significantly improved over time, resulting in lower average [provisions for credit losses].”
Published December 9, 2009 by the Financial Times