Canadian banks strong in 2012 and heading towards a 'new normal': PwC
Persistent regulatory reform, limited economic growth and shifting consumer
behaviours are shaping banks' future plans
TORONTO, Feb. 25, 2013 /CNW/ - Canadian banks experienced another strong year
in 2012-- the Big Six earned a combined $28.6 billion in net income
attributable to bank shareholders, translating into an average 17.1% return on
equity (ROE). However, according to PwC's annual Canadian Banks: Perspectives
on the Canadian Banking Industry report, Canadian banks must address
persistent regulatory reform and uncertainty, shifting consumer behaviours and
the subsequent impact on growth -- all in a limited economic growth
environment--in order to see these strong results continue.
"Canadian banks are entering an era of a new normal," says Diane Kazarian,
PwC's Canadian Financial Services Leader. "While they continue to demonstrate
their strength, the banks face conflicting expectations from shareholders,
consumers, regulators and central banks, all of which add additional layers of
complexity to the business of banking."
Banks are adapting to regulatory changes
Ongoing regulatory reform is part of the new normal for Canadian banks, and
additional rules are expected to keep coming for the foreseeable future. In
addition to changes to regulatory capital requirements, banks are facing
increased operational costs to meet these new requirements -- such as
overhauling IT systems and adding headcount to new compliance functions—that
can impact the bottom line. In order to maintain current profit levels, this
new reality is likely to lead to changes internally as well. According to the
16(th) Annual CEO Survey, 63% of banking and capital markets CEOs plan to
implement new cost reduction initiatives and nearly three-quarters (72%) are
planning to change their organizational structure.
"The costs of implementing regulatory changes are unavoidable, so banks must
seize opportunities to streamline operations and ensure continued productivity
and optimization," says John MacKinlay, PwC's Financial Services Consulting
Leader. "To create efficiencies, for example, we recommend to banks that they
bring all regulatory projects together under a single control. This will help
maintain consistency in operations and costs, and not least of all, the
'New normal' means new business priorities and opportunities for Canadian banks
Interest rates are low, which, in prolonged periods, leads to net interest
margin compression and may put ROE at risk. And, while retail lending did see
some growth in 2012, this market appears to be reaching its saturation point,
in part due to the record high household debt levels faced by Canadians. This
cautious outlook for retail lending was also a factor in the recent cut in
credit ratings for the banks.
Still, the future does look positive overall for Canadian banks. The change in
the retail lending landscape presents the opportunity for the Big Six to offer
new services and focus on other profitable areas of business. For example,
commercial and small business lending, wealth management, new insurance
products and trading and investment banking and are all avenues banks have the
potential to capitalize on over the next few years.
Another space in which Canadian banks are well-positioned to make significant
inroads is mobile payments. This is a competitive arena-- while payments used
to be the banks' exclusive domain, now other players are looking to capitalize
on the opportunity for profit that mobile and digital transactions provide.
However, Canadian banks may already have an advantage, as recent PwC research
has shown that the majority of Canadians would prefer that their mobile
payments be provided by their bank.
"Canadian banks need to make sure they have a seat at the table as the
landscape continues to alter," says Kazarian. "While changes are certainly in
store, there are new opportunities as well, and the Big Six are in a strong
position to pave the road ahead. Proactively seeking out new growth drivers
will help Canada maintain the resilience and strength that has earned us
worldwide admiration over the past five years."
About Canadian Banks 2013: Perspectives on the Canadian Bank Industry
Now in its 30(th) year, the report provides an analysis of each of the Big Six
banks (CIBC, Scotiabank, RBC, BMO, TD and National Bank of Canada) and
assesses their performance and strategies for growth. A copy of the report is
available here and can also be provided by the media contacts upon request.
About PwC Canada
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looking for. More than 5,700 partners and staff in offices across the country
are committed to delivering quality in assurance, tax, consulting and deals
services. PwC Canada is a member of the PwC network of firms with more than
180,000 people in 158 countries. Find out more by visiting us at
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SOURCE: PwC Management Services LP
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-0- Feb/25/2013 12:00 GMT
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