Friday, September 19th21.4°C
19716
22285

Bank CEOs refocus priorities as Canadians borrow less, turn to saving

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.

The Canadian Press


Read more Business News

22551


Recent Trending




Today's Market
S&P TSX15276.64-188.90
S&P CDNX956.92-8.87
DJIA17291.6625.67
Nasdaq4575.354-18.071
S&P 5002010.58-0.78
CDN Dollar0.9117-0.0027
Gold1215.40-11.50
Oil92.10-0.97
Lumber329.60-0.30
Natural Gas3.908-0.067

 
Okanagan Companies
Pacific Safety0.16-0.005
Knighthawk0.01-0.005
QHR Technologies Inc1.40+0.08
Cantex0.060.00
Anavex Life Sciences0.224-0.0021
Metalex Ventures0.060.00
Russel Metals35.88-1.13
Copper Mountain Mining2.61-0.07
Colorado Resources0.165-0.01
ReliaBrand Inc0.024-0.003
Sunrise Resources Ltd0.02-0.005
Mission Ready Services0.300.00

 





FEATURED Property
2053737980 Skyline Road
4 bedrooms 3 baths
$425,000
more details
image2image2image2
Click here to feature your property
Please wait... loading


Disruptive innovation

Last night I was privileged to be able to speak at the Greater Westside Board of Trade business awards dinner. Photo: ContributedI talked about Innovation and Collaboration which are two very interes...


Executors and their duties

There will be a time when you will need to decide who you should appoint as executor of your Will. As well, there may be a time when you will be asked by someone to act as the executor of his or her W...


Power-save your way to a down payment

Part 1 of 2 Photo: Thinkstock.com1. Move in with your parents or in-laws Explain that you're thinking strategically in moving back home. The quickest way to get into the housing market is to ma...

_








Member of BC Press Council


22962