Bank CEOs refocus priorities

Canada’s biggest banks say consumers are reaching the limit on how much they can afford to borrow, and that’s likely to slow loan growth this year.

TORONTO — Canada’s biggest banks say consumers are reaching the limit on how much they can afford to borrow, and that’s likely to slow loan growth this year.

Royal Bank (TSX:RY) chief executive Gord Nixon said Tuesday he expects Canadian households will begin to show more restraint.

“In terms of pure consumer lending (growth), we’ll probably be operating at a much lower rate than we have been over the last few years,” he told a bank industry conference.

“There’s no question that the consumer has been leveraged up.”

Canadians have taken advantage of low interest rates for years by borrowing record amounts that could leave them vulnerable.

Policy-makers have expressed concern that a sudden rise in interest rates would leave many consumers unable to meet their payments, potentially causing a fallout that ripples through the housing market and consumer spending.

Statistics Canada reported last month that household debt touched an all-time high during the third-quarter of 2013, inching up 0.6 percentage points to 163.7 per cent over the summer months.

The increase means Canadians owe nearly $1.64 for every $1 in disposable income they earn in a year.

Nixon said he expects consumer lending growth to remain tight, rising by mid single-digit levels, for “an extended period of time” after several years of double-digit increases.

“What would be the most healthy outcome for the marketplace is for there to be a steady, orderly increase in interest rates to a reasonable level,” he said.

A slower increase in the debt levels of Canadians would help shift away from a dependence on the consumer for overall economic growth, said Bank of Montreal (TSX:BMO) chief executive Bill Downe.

He expects U.S. business loans will become a more dominant force in the banking industry this year. BMO could gain a share of that growth through the presence of its Harris bank in the U.S. Midwest.

“We’re going to benefit from continued strong commercial and industrial loan growth and I think that’s going to spill over into Canada,” he said.

Downe said as consumers borrow less they will focus on financial planning, like saving for retirement, which will help grow its wealth management business.

“In essence, it’s a shift on the part of the consumer from borrowing and spending to saving and investing,” he said.

While Canadians may take on less debt in the future, more of them will be struggling to pay off their overdue bills rather than saving for the long term, a new survey of risk professionals in the financial services industry suggested.

A poll from credit score analysis firm FICO said that 32 per cent of respondents expect that credit card delinquencies will increase over the next six months.

And even balances on accounts that aren’t delinquent are predicted to rise, the survey found. About 60 per cent of bankers expect average credit card balances to go up, with nine per cent saying they’ll likely go down.

Much of the debt will likely come from unpaid auto loans, which are expected to hit their highest level since the fourth quarter of 2012, FICO said.

“While the delinquency predictions in our survey aren’t alarming, lenders will be keeping a close eye on these trends,” said FICO chief analytics officer Andrew Jennings in a release.

“Banks are walking a fine line, trying to grow their lending portfolios without taking excessive risks.”

The online survey, which was part of a broader poll of North American risk professionals in November, included 82 Canadian respondents.

Scotiabank (TSX:BNS) chief executive Brian Porter said he’s comfortable with the credit quality from its customers and doesn’t see any major concerns developing in the real estate market either.

“We would view supply and demand relatively in check across the country,” he said.

“The one area where we have some little concern is here in Toronto in the condo market.”

Toronto-Dominion Bank (TSX:TD) head Ed Clark said low interest rates have pushed housing prices higher and the banking industry should be concerned about the potential for a housing bubble.

“I don’t think it’s going to collapse, but I do think that if you run a bank, you should be worried.” he said.

“It’s something we should watch.”

TD Bank is staying cautious by turning down unfavourable loan applications that some other banks may approve, he said.

“We have to always lean against these asset bubbles,” he said.

Get local stories you won't find anywhere else right to your inbox.
Sign up here

Just Posted

NDP leader Rachel Notley is calling on the UCP to make a public inquiry into the COVID-19 outbreak at Olymel. (Facebook screenshot)
Notley calls for Olymel inquiry as plant reopens

Union also asks for further consideration to delay opening

Protesters
Rally held outside Red Deer court for slain central Alberta man

Tyler John Campbell charged with second-degree murder for December 2019 homicide

Hog slaughter operations resumed on Thursday at Red Deer’s Olymel plant, which was closed for two weeks to curb the spread of COVID-19 among workers. Three employee deaths resulted from the latest outbreak. (Advocate file photo).
Hog slaughtering operations gear up again at Red Deer’s Olymel plant

Workers begin to return after 14-day closure due to COVID-19 outbreak

Bryson, six, and Mara, eight, play with puppies from Dogs With Wings Saturday. (Photo by Sean McIntosh/Advocate staff)
Dogs With Wings introduces Red Deer program

A program that trains puppies to be certified service, autism, facility and… Continue reading

Alberta’s Chief Medical Officer of Health Dr. Deena Hinshaw says the greater lag time between first and second doses will allow more Albertans to be effectively vaccinated sooner. (File photo)
Alberta extends time between vaccine doses means more people to get shot sooner

National Advisory Committee on Immunization says doses can be to up to four months apart

FILE - In this Feb. 23, 2021, file photo, a vehicle rests on its side after a rollover accident involving golfer Tiger Woods in the Rancho Palos Verdes suburb of Los Angeles. Detectives are looking at data from the so-called “black box” of Tiger Woods’ SUV to get a clearer picture of what occurred during the Southern California rollover crash last week that seriously injured the golf star, authorities said Wednesday, March 3. (AP Photo/Marcio Jose Sanchez, File)
Detectives look at SUV’s ‘black box’ from Tiger Woods crash

California law allows law enforcement to seek search warrants for data recorders

FILE - In this Jan. 30, 2019 file photo, Alex Kurtzman, from left, Heather Kadin, Anson Mount, Sonequa Martin-Green and Ethan Peck participate in the “Star Trek: Discovery” show panel during the CBS All Access presentation at the Television Critics Association Winter Press Tour at The Langham Huntington in Pasadena, Calif. Paramount+ debuts Thursday, March 4, 2021 as the latest — and last — streaming option from a major media company, this time from ViacomCBS. The company hopes its smorgasbord of offerings — live sports and news, reboots of its properties like “Frasier” and “Rugrats,” original shows like “Star Trek: Discovery” and the ViacomCBS library will entice viewers(Photo by Willy Sanjuan/Invision/AP, File)
Will Paramount+ be a mountain or a molehill in streaming?

Over the last year and a half more and more streaming services have debuted

Red Deer Regional Hospital Centre can accommodate up to 20 patients requiring a ventilator, says Alberta Health Services.  File photo by Advocate staff
Opinion: UCP government reneging on Red Deer hospital funding

Another year, another Alberta budget and another blow to central Albertans. Budget… Continue reading

Seattle Storm guards Sue Bird, right, and Jordin Canada pose for photos Wednesday, March 3, 2021, on the roof of the Space Needle in Seattle after they raised a flag with the team's new logo on it. Bird re-signed with the Storm earlier in the week. (AP Photo/Ted S. Warren)
Sue Bird staying busy with 20th Seattle season on horizon

Sue Bird staying busy with 20th Seattle season on horizon

Lille players celebrate after Jonathan David scored his side's second goal during the French League One soccer match between Lille and Marseille at the Stade Pierre Mauroy stadium in Villeneuve-d'Ascq, France, Wednesday, March 3, 2021. (AP Photo/Michel Spingler)
David scores 2 as Lille wins to stay two points clear of PSG

David scores 2 as Lille wins to stay two points clear of PSG

Canada defender Shelina Zadorsky, right, passes the ball in front of Argentina forward Sole Jaimes (9) during the second half of a SheBelieves Cup women's soccer match, Sunday, Feb. 21, 2021, in Orlando, Fla. Alphonso Davies and Shelina Zadorsky have been named Canada Soccer’s players of the month for February. THE CANADIAN PRESS/AP, Phelan M. Ebenhack
Davies, Zadorsky named Canada Soccer’s players of the month for February

Davies, Zadorsky named Canada Soccer’s players of the month for February

Most Read