Canadian banks aim to bring reluctant business borrowers back as mortgage growth slows

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TORONTO, June 2 (Reuters) – While Canadian businesses are gearing up for a gradual reopening this summer after a year of intermittent lockdowns, banks are wary of the outlook for rapid lending growth as economic recovery remains patchy and cautious commercial clients hold out. register funds accumulated during a pandemic.

Canada’s six leading 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 – emerged from the pandemic relatively unscathed thanks to government support programs and their postponement of their own loans.

When traditional lending to businesses ceased, banks began to use mortgages against the backdrop of a heated real estate market.

This brought the average mortgage balance of the six lenders to a record C $ 1.18 trillion ($ 978.5 billion) in the three months to April, up 9% from a year earlier, exceeding the rate seen during the the peak of the housing market in 2017.

But mortgage growth is expected to slow, said Mike Clare, portfolio manager at the Brompton Group, as house price increases since last summer reduce affordability and stricter mortgage rules come into effect.

This, coupled with an uneven business recovery, means Canadian banks’ core lending operations at home may experience sluggish growth for much of this fiscal year.

“I am concerned about lending growth in the future,” said Edward Jones analyst James Shanahan. “There is significant uncertainty in Canada about the strength and scope of the economic recovery due to repeated lockdowns associated with the pandemic.”

Business loan balances rose on average by just 0.2% on average, albeit at a time when many companies cut credit lines due to the halt of debt markets at the onset of the coronavirus pandemic. But over the past two quarters, they have grown by only 2-3%.

For investors who have pushed bank stocks to record highs this year, the uncertain outlook may cause some concern. The Canadian bank’s index has risen nearly 50% over the past year, compared with a 31% increase in the broader index. But the banking index has lagged behind the market as a whole since lenders began reporting results last week.

‘HISTORICAL FAULTS’

“I expected … that (business) inventory and growing accounts receivable would lead to (credit) drawdowns, and you don’t see that,” said Neil McLaughlin, head of personal and commercial banking at Royal Bank of Canada. on an analyst call last week. “This is already lagging behind, but it will come.”

The executives of the National Bank of Canada said the deposits were “stronger” than they expected at the start of the pandemic because businesses were not spending all the cash they had.

“Operating line numbers … are at their lowest level,” said Stefan Achard, executive vice president of commercial banking and insurance for the bank. “I expected them to stay low and gradually rise over time.”

Six banks beat their second-quarter earnings forecasts on lower-than-expected loan loss provisions and strong capital market performance.

Claire said that while capital market enterprise earnings, which “have stepped up to fill the void in traditional banking,” may be moderate, they should remain strong given continued market and transaction volatility, which will help offset some of the gap. lending.

(1 US dollar = 1.2059 Canadian dollars)

Report by Nikolay Saminater; Edited by Denny Thomas and Peter Cooney

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