Shiny bank buildings

(Runtime: 4:58. Read the audio transcript.)


Canadian banks have a strong track record of managing through challenging times, and the pandemic was no exception, says James Black, vice-president, Canadian equities, and director of equities research with Toronto-based Beutel Goodman Investment Counsel.

Black said the Canadian financial sector has remained resilient through periods of elevated loan losses and withstood protracted financial droughts. “The strength of the business is such that they have been able to both survive and ultimately thrive through those downturns.”

According to Black, an already resilient Canadian financial system was strengthened with new regulations following the global recession of 2008-2009, and the reforms proved their value through the challenges of 2020 and 2021.

“A very good lesson coming out of the craziness of the last 18 months has been the resiliency of the institutions and the stringency of the capital requirements,” he said. “We view the financial system overall as being in good health. It’s a stable regulatory environment.”

But there could be challenges on the horizon.

“There are potential changes in the competitive landscape, as things like open banking are considered,” Black said. “And also, the banks and the life insurance companies continue to look to allocate capital outside of Canada. So, it makes it makes for a very fluid environment, with lots of things happening that we always have to consider as we make our investment decisions.”

He said the growing digitization of financial transactions is bringing a crop of new competitors to the financial industry, and with it, the need to cull of bank branches.

“We’ve already seen somewhat of a reduction over the last few years, and I would suspect that’s going to be a trend that’s going to continue,” he said. “I don’t think branches are going to be eliminated. I think they’re going to remain an important point of customer contact that makes sales processes — particularly of higher-value products. But the number is going to go down and not up.”

Another potential development, he suggested, is increased fintech regulation. Technology companies that offer financial services have remained relatively unburdened by regulations like capital requirements, know-your-client regulations and anti-money laundering provisions, he said. But that will change as fintech grows.

“At some point, it’s likely that if fintechs become a larger share — and they’re still relatively quite a small share — that more regulation is inevitable. And that would likely serve to level the playing field somewhat,” he said.

As for insurance companies, Black said they also performed well during Covid.

“Claims relating to the pandemic have been manageable. Sales declined pretty precipitously in the earlier part of the lockdown but they’ve rebounded and, I would think, quite strongly,” he said.

He said greater digitization of transactions portends changes here as well, including the possibility of new regulations. But for the insurance industry, this has been part of the landscape for decades.

“The insurance companies have always been heavily regulated and trends in regulation are generally always to more regulation, rather than less,” he said. “And companies, as they have greater requirements to fulfill, they’re just going to have to do that.”


This article is part of the Soundbites program, sponsored by Canada Life. The article was written without sponsor input.

Canada Life Canadian Equity Fund – mutual fund
Canada Life Canadian Equity Fund – segregated fund
Fonds d’actions canadiennes Canada Vie - fonds communs de placement
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