Strong consumer spending, backed by a solid labour market, drove the growth of Canada’s deposit-accepting intermediaires in 2007, Statistics Canada reported Tuesday.

Chartered banks, trust companies, caisses populaires and credit unions produced services in Canada valued at $69.1 billion in 2007, up 6.7% from 2006, StatsCan said.

This amount consisted of net interest income, which grew 5.6% to $34.6 billion, and non-interest income, which increased 7.7% to $34.5 billion.

In addition to robust consumer spending, business investment remained strong as did the active housing market in the early part of 2007, StatsCan said.

Retail banking continued to be the primary income-generating activity for deposit-accepting intermediaries, accounting for 60% of the total value of services produced in 2007.

The share of treasury and investment banking increased from 18.3% in 2006 to 21.6% in 2007. The rise was primarily due to gains in non-interest income for the segment, which grew from the previous year.

Non-interest income continued to outperform interest income in terms of growth, closing the gap between the two general categories of income to $121 million in 2007 from $749 million in 2006.

In 2007, deposit-accepting intermediaries increased their provisions for credit losses by 15.9% to $3.2 billion. Expected losses from impaired loans and losses in credit instruments swelled considerably at the end of 2007, marking a higher increase than observed in the previous year.

Many deposit-accepting intermediaries raised their provisions because of higher write-offs on both personal and business loans. They were also affected late in 2007 by the U.S. subprime mortgage crisis, StatsCan said.

Net interest income

Higher product volumes and rising earning assets driven by growth in mortgages and deposits led to the increase in net interest income for deposit-accepting intermediaries in 2007.

This growth was partially offset by the tightening conditions in the corporate and institutional finance segment, which declined by 14.8% to $1.5 billion. However, retail banking services continued to dominate the interest income segment of deposit-accepting intermediaries, accounting for 87.9%.

Banks, caisses populaires, and credit unions continued to expand their electronic financial offerings. In 2007, the interest income arising from this portfolio increased by 15.9% to $2.3 billion. This segment has grown more than five-fold in the last 10 years.

Non-interest income

For a significant part of the sector, an early strong business investment environment in 2007 led to an increase in trade volumes and mutual fund revenues. Electronic financial services benefitted from these conditions, posting a 1.5% increase over 2006 to $5.4 billion.

However, worsening market conditions that prevailed during the latter part of 2007 adversely affected income as the fiscal year came to a close.

Trading income was down across the board, due to increased funding costs on trading positions, and weak equity trading.

IE