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Canadian Financial Industry Overview 2016

Posted on October 2016

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​Canada’s economy has always boasted some seriously enviable credentials including a strong economy backed by a highly regulated financial sector.

That being said, the Canadian economy is currently at a crossroads. The country has narrowly dodged a recession and many are predicting an uncertain future if the housing market bubble bursts. But is the concern about the impact such a ‘bubble’ could have on the banking sector really justified?

According to Dirk Leach, a writer for financial analysis website Seeking Alpha, the answer is no. Leach explains there are several factors stacked in favor of Canada's banking systems, primarily due to its stricter mortgage loan requirements.

In fact, there are plenty of positives about Canada’s financial industry. 2016 has been a year of good performance, investment opportunities and expansion – all of which bodes well for the future.

A solid performance in 2016

According to the World Economic Forum, Canada’s banking system is the soundest in the world. The secret to its success comes down to market capitalization. Between 2007 and 2012, the combined market capitalization for Toronto’s top-5 banks increased by 30%. This growth far exceeded that of New York’s and London’s banks (down -57.8% % and down -31.9% respectively).

Put simply, Canada’s banking system is well capitalized, well managed and well regulated. It surpasses the norms set by the Bank for International Settlements by considerable margins.

During the 2009 financial crisis, none of Canada’s banks failed or required a bailout. In fact, against the odds they continued to lend. Seven years on, Canada’s largest banks continue to perform well, offering a wide range of financial and investment services and operating with conviction on the global stage.

Canada vs. the US and Europe

US investors looking for a reasonable return with a minimal amount of risk might want to look north of the border. Canadian banks offer an investment opportunity that delivers a respectable dividend, capital appreciation and a favorable exchange rate – all with a risk profile that makes US banks seem positively perilous.

Canada’s banks boast a non-performing loans fraction of just 0.6%. Looking at corresponding figures from EU (5.6%) and US banks (3%), Canada’s banks really do offer smart investment opportunities comparatively.

So why do Canadian banks outrank their US and European counterparts? Again, it all comes down to stability and credit-worthiness. As well as being the soundest, Canada’s banking system is also ranked number one in the world for financial strength and safety, according to Moody’s Investor Services.

Going one step further, a report by professional services firm PwC – Canadian Banks 2016: Embracing the FinTech movement, places the future of Canadian banking with investment in FinTech.

Expansion into the US

Over the past year, there has been a steady flow of acquisitions by Canada’s banks looking to expand their reach across the US border. The timing for this move couldn’t have been better with European banks (including Credit Suisse, UBS AG and Barclays PLS) scaling back their US operations.

As Richard Bove, an analyst at Rafferty Capital explains, “There has been a vacuum created in the US.” He continues, “European banks are pulling out, and American banks are not being allowed to expand, but the economy is bigger and the financial system is growing much larger. And the Canadians are taking advantage.”

They certainly are. Some of the Canadian banks that are maximizing this opportunity and expanding into the US include Bank of Montreal (having acquired Greene Holcomb Fisher), Toronto Dominion (having acquired Albert Fried & Co), and Royal Bank of Canada (having acquired City National Corporation).

Predictions for 2017

It seems almost certain that we will see a continuation of strong growth across Canada’s banking system. Perhaps some of this success can be attributed to a move away from traditional business models within some banks. For example, Scotiabank has adopted a Silicon Valley-style approach to tackling issues, while banks such as Bank of Montreal and Canadian Imperial Bank of Commerce are actively embracing the digital space.

With the combination of a banking industry that is in remarkably good shape and an increased focus on digital technology,  the future looks bright.  Perhaps the only competition Canada’s banks will see will be from other organizations within the industry determined to hire top talent.  For a consultation on your current recruitment needs and how they might evolve in the future, get in touch today.


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