A new study from Statistics Canada finds that foreign banks are taking a bigger chunk of the deposit business in Canada.

From 1997 to 2004, foreign banks increased their market share of the deposit-taking sector in Canada, according to a new study. However, domestic banks continued to dominate the Canadian market. In 1999, the federal government allowed foreign-owned banks to establish full service branches in Canada, rather than restricting them to forming subsidiary companies as in the past.

In 1997, foreign bank subsidiaries and full-service branches accounted for 5.7% of the value of services produced in this sector. By 2004, this proportion had edged up to 7.9%. This increase in market share can be attributed largely to the rapid 7% average annual growth in the real value of services produced by these foreign operators during this seven-year period, StatsCan said.

The fastest growing foreign bank institutions in Canada offered credit card and other electronic financial services or specialized in corporate and institutional finance. Mergers and acquisitions have helped others to grow, it noted.

At the same time as foreign banks have made inroads in Canada, Canadian banks extended their reach both at home and abroad, the study also found. The market share gains of the foreign operators meant relatively small losses in market share by the domestic banks and trust companies.

Canadian financial institutions have also been going global. Their share of activities abroad has been increasing along with foreign direct investment in other countries, the study reported. Between 1997 and 2004, the total real value of services produced by the domestic banks rose at an annual average rate of 1.8% in Canada. Worldwide, however, the gain was more than double that pace at 4.8%.

In 2005, deposit-taking institutions represented 3.2% of the total GDP for Canada. This is more than the whole transportation equipment and motor vehicle manufacturing industry.