![[Canada] Further loan loss provisions and lending pressure expected in 2024](http://globalpayrollassociation.com/cdn/shop/articles/bigstock-Montreal-Canada--September--260576881_1200x.jpg?v=1705039734)
The CEOs of some of Canada’s biggest banks have said that high interest rates are delaying business and consumer spending decisions and are likely to lead to further provisions for bad loans in 2024, Yahoo reports.
However, the chief execs also stated that borrowers overall should manage well.
Speaking at the RBC Capital Markets Canadian Bank CEO Conference on January 9, Dave McKay - RBC chief executive - reportedly said he expects to see credit loss provisions peak this year as parts of the commercial lending side remain strained.
Mr McKay added that borrowers on the mortgage side are having to adapt to payment increases of approximately 20 per cent (or $400 per month on average) for its clients renewing this year. Still, higher wages along with savings are helping to soften the impact.
"Our experience in 2023 as an industry, and at RBC, is consumers are doing a very good job of using their savings, of changing their spending habits if necessary. But also don't forget that the 20 per cent payment increase matches, on average, a 20 per cent disposable payroll increase."
Mr McKay said that while he expects borrowers to weather the year ahead much like they did last year, he expects 2024 to be a little worse on several fronts, especially commercial real estate in the U.S., some multi-family residential markets, capital markets and some on the unsecured consumer lending side.
Scott Thomson - Scotiabank chief executive - said the bank also expects higher provisions for bad loans but sees a more steady path this year after 2023's restructuring efforts.
"I don't see any provision release, I do see more of a steady hand as we look at provisions going forward," Mr Thomson said.
He stated that the bank's markets in Latin America are already seeing rates fall to help reduce risk and provide a tailwind on loan loss provisions.
Laurent Ferreira - National Bank chief executive - reportedly said that, while there are widespread expectations that central banks will lower rates this year, markets are being overly optimistic about it.
He said numerous pressures could make the push to get inflation fully under control more difficult.
"You have geopolitical risk, which could impact food price, trade disruption. You have energy transition, deglobalisation, you have government spending, these are all inflationary," Mr Ferreira said.
"Yes, we should see some rate cuts, but I think the market is a little bit optimistic in terms of the Canadian economy and rates in Canada. We're expecting negative GDP growth for the first two quarters, minus 1.1 and 1.3 per cent, respectively."
The potential for rate cuts ahead is likely to mean less lending and business activity in the near term, according to several bank executives, pressuring economic growth over the next few months.
Darryl White - BMO chief executive - reportedly said it makes sense that both personal and business clients are delaying borrowing on everything from home renovations to buying a company if it is not necessary to do so today.
"If I told you that in a transaction that you were considering ... the high likelihood is if you do it in six or nine months from now it's going to be 100 basis points cheaper, what are you going to do? You're going to wait," Mr White said.
Mr Thomson also reportedly said that many business leaders are waiting for clarity on rates, and the economic picture more generally, leaving him to manage expectations around increased business activity in 2024.
"There's just a lot of uncertainty in the market, which obviously holds back clients, CFOs and CEOs, from making decisions."
Source: Yahoo
(Quotes via original reporting)
The CEOs of some of Canada’s biggest banks have said that high interest rates are delaying business and consumer spending decisions and are likely to lead to further provisions for bad loans in 2024, Yahoo reports.
However, the chief execs also stated that borrowers overall should manage well.
Speaking at the RBC Capital Markets Canadian Bank CEO Conference on January 9, Dave McKay - RBC chief executive - reportedly said he expects to see credit loss provisions peak this year as parts of the commercial lending side remain strained.
Mr McKay added that borrowers on the mortgage side are having to adapt to payment increases of approximately 20 per cent (or $400 per month on average) for its clients renewing this year. Still, higher wages along with savings are helping to soften the impact.
"Our experience in 2023 as an industry, and at RBC, is consumers are doing a very good job of using their savings, of changing their spending habits if necessary. But also don't forget that the 20 per cent payment increase matches, on average, a 20 per cent disposable payroll increase."
Mr McKay said that while he expects borrowers to weather the year ahead much like they did last year, he expects 2024 to be a little worse on several fronts, especially commercial real estate in the U.S., some multi-family residential markets, capital markets and some on the unsecured consumer lending side.
Scott Thomson - Scotiabank chief executive - said the bank also expects higher provisions for bad loans but sees a more steady path this year after 2023's restructuring efforts.
"I don't see any provision release, I do see more of a steady hand as we look at provisions going forward," Mr Thomson said.
He stated that the bank's markets in Latin America are already seeing rates fall to help reduce risk and provide a tailwind on loan loss provisions.
Laurent Ferreira - National Bank chief executive - reportedly said that, while there are widespread expectations that central banks will lower rates this year, markets are being overly optimistic about it.
He said numerous pressures could make the push to get inflation fully under control more difficult.
"You have geopolitical risk, which could impact food price, trade disruption. You have energy transition, deglobalisation, you have government spending, these are all inflationary," Mr Ferreira said.
"Yes, we should see some rate cuts, but I think the market is a little bit optimistic in terms of the Canadian economy and rates in Canada. We're expecting negative GDP growth for the first two quarters, minus 1.1 and 1.3 per cent, respectively."
The potential for rate cuts ahead is likely to mean less lending and business activity in the near term, according to several bank executives, pressuring economic growth over the next few months.
Darryl White - BMO chief executive - reportedly said it makes sense that both personal and business clients are delaying borrowing on everything from home renovations to buying a company if it is not necessary to do so today.
"If I told you that in a transaction that you were considering ... the high likelihood is if you do it in six or nine months from now it's going to be 100 basis points cheaper, what are you going to do? You're going to wait," Mr White said.
Mr Thomson also reportedly said that many business leaders are waiting for clarity on rates, and the economic picture more generally, leaving him to manage expectations around increased business activity in 2024.
"There's just a lot of uncertainty in the market, which obviously holds back clients, CFOs and CEOs, from making decisions."
Source: Yahoo
(Quotes via original reporting)