Canadian banks, ranked the world’s soundest for the past three years by the World Economic Forum, will meet new capital requirements proposed by global regulators by 2012, or seven years ahead of target, according to an RBC Capital Markets analyst.
Regulators reached a compromise over the weekend that more than doubles capital requirements for the world’s banks, while giving them as long as eight years to comply in full.
“Implementation will be even longer than we anticipated, allowing Canadian banks to easily meet the new minimum capital targets by the time they are implemented,” Andre-Philippe Hardy, an analyst at RBC Capital Markets, wrote in a note today to clients.
Canadian lenders, which didn’t require any government bailout money during the financial crisis and took a fraction of the $1.3 trillion in writedowns recorded by banks and brokers globally, will have enough capital to meet the new rules in less than two years, Hardy said.
That means the companies will be able to raise dividends, starting with Toronto-Dominion Bank and National Bank of Canada in the fiscal first quarter of 2011, Hardy said.
The Basel Committee on Banking Supervision will require lenders to have common equity equal to at least 7 percent of assets, weighted according to their risk, including a 2.5 percent buffer to withstand future stress.
Bank of Montreal
Bank of Montreal, Canada’s fourth-biggest bank, already meets that requirement based on third-quarter data, with a capital ratio of about 8.6 percent, Hardy said. Canadian Imperial Bank of Commerce is at 6.6 percent, while Bank of Nova Scotia is at 5.8 percent and Toronto-Dominion at 5 percent, he said.
“Based on the visibility we have now and the work we’ve done to date, we’re well positioned -- both on an absolute basis and a relative basis -- to adopt the new rules,” Bank of Montreal Chief Risk Officer Tom Flynn said today at a conference in New York sponsored by Barclays Capital. “We’re feeling confident about our position relative to Basel III.”
Canadian Finance Minister Jim Flaherty doesn’t expect domestic banks will need to raise their capital standards beyond the levels of what global regulators are seeking.
“We’re certainly not going to lower our standards in Canada, but we don’t have the final word on the international standards,” Flaherty told reporters in Toronto today. “We’re comfortable with the direction.”
‘Starved For Yield’
Canadian banks, in the midst of the longest dividend freeze in more than a decade, still require the blessing of the country’s banking regulator before increasing quarterly dividends, said Sumit Malhotra, an analyst at Macquarie Capital Markets in Toronto.
“It has been two full years since any of the large-cap Canadian banks have increased their quarterly dividend, and in a market starved for yield, a recommencement of hikes from this heavyweight sector has been eagerly anticipated,” Malhotra wrote today in a note to clients.
Royal Bank of Canada rose C$1.10, or 2.1 percent, to C$54.60 at 4:10 p.m. trading on the Toronto Stock Exchange. Bank of Montreal climbed 63 cents to C$61.78, while Bank of Nova Scotia, Canadian Imperial and Toronto-Dominion also rose.