Canadian banks strong in 2012 and heading towards a 'new normal': PwC

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 
customer experience." 
'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
PwC Canada helps organizations and individuals create the value they're 
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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CO: PwC Management Services LP
ST: Ontario
-0- Feb/25/2013 12:00 GMT
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