Canada’s banking sector is expected to see tepid top line growth this year — yet profits are expected to keep rising — amid slowing credit growth, according to a new outlook report from the Ottawa-based Conference Board of Canada.
Canada’s banking business will grow at just a 2.4% annual rate in 2017 due to weaker growth in both consumer and business credit, according to the Conference Board’s report. Between tougher mortgage rules, higher taxes and already high levels of household debt, the growth of consumer debt will continue to slow this year.
“In fact, this year, for the first time in 25 years, growth in disposable income should outpace growth in consumer debt,” the Conference Board’s outook forecasts.
At the same time, recent strong growth in business lending will not be sustained in the year ahead, the Conference Board’s outlook also says: “Chartered bank loans issued to the private sector have posted their longest expansion on record — 24 consecutive quarters of growth since the 2009 recession. However, the double-digit increases seen through 2016 will not be sustained moving forward, with a slowdown in private sector lending growth expected this year.”
As a result of these trends, the report predicts that banks will be focused on controlling costs in the year ahead to support their margins.
“Despite historically low interest rates, the industry’s profit margin has improved significantly in recent years and is expected to average around 31% over the next five years,” the Conference Board’s report says. “Meanwhile, pre-tax profits will continue to climb, reaching over $80 billion this year.”
The key risks to this outlook include the prospect of a correction in either the housing market, or equity markets, which, the Conference Board says, “would have a significant impact on the industry’s performance.”
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