Canada: Canadian Banks 2011 - Perspectives on the Canadian Banking Industry

Capitalizing on Opportunities

In a time of accelerating change, Canadian banks have done far more than what's necessary to survive over the past year. As many global banks struggled to regain their pre-crisis position, Canada's Big Six banks leveraged their well managed, well regulated and well capitalized standing to actively pursue their growth strategies. And the effort paid off: the 2010 combined net income of the Big Six was $20.4 billion, exceeding 2009 net income by more than $6 billion and eclipsing the previous record of $19.5 billion set in 2007.

With the events of the past year in mind, we spoke with a number of Canadian analysts and portfolio managers to understand their opinion on what the future holds for Canadian banks. Overall, managing complexity, pursuing growth strategies and transforming through innovation were the overriding considerations to stay competitive. As is often the case, the real challenge going forward is how to execute while many pervasive risks remain.

A clearer path ahead

In last year's edition of this publication, we reported that increased regulation, tighter controls and government intervention in many countries dominated the agendas of the financial services sector. This sentiment continued in 2010: according to PwC's 14th Annual Global CEO Survey, over 80% of global banking CEOs were concerned that overregulation would threaten their business growth prospects. In Canada, despite their strong earnings, banks were also faced with significant obstacles related to economic and regulatory uncertainty. Out of necessity, 2010 ushered in a new era of regulation through global regulatory reform designed to increase both capital and transparency for financial institutions—and provide much needed clarity for the industry.

The recently endorsed Basel III reforms will require banks to retain greater levels of capital and liquidity, as well as higher capital quality. Currently, all of Canada's major banks comply with the attributes of the new rules and meet the initial 2013 targets. But the changes will likely have implications for each bank— potentially impacting profitability and decisions around the mix of business.

At the same time, increased US regulation, such as The Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), will change the way financial institutions conduct business, requiring banks to assess how they operate and manage risks as the rules are defined.

Execution in managing the different and growing regulatory requirements will be critical over the coming years; and management and boards will need to pay significant time and attention to the implications of the changing regulations. As clarity emerges around the way regulations will be devolved, the banks will be able to operate with greater certainty and confidence in those growth strategies that have propelled them into the global spotlight over the past year.

Looking back, how have Canada's banks generated growth? According to one portfolio manager, "Five to six years ago, the Big Six banks looked similar, now they have really differentiated themselves." Looking ahead, where do they go from here?

Last year's events have shown that a number of the Big Six banks are looking internationally to expand their presence and gain precious share in important strategic markets. Announcements of foreign acquisitions dominated the news in late 2010, with banks snapping up smaller players around the world and deepening their presence in countries where they have existing operations. According to one portfolio manager, "the easiest way to play catch-up is to acquire".

Interestingly, Canadian banks' strategies are now starting to diverge, in terms of both geographic and line of business focus. For example, we have seen varying focus on growth opportunities in the US, Latin America, the Caribbean, Europe and Asia For some institutions, capital markets and asset management is the priority, while others are investing more in personal and commercial banking.

In 2010, Bank of Montreal (BMO) and Toronto- Dominion Bank (TD) focused on consolidation in the US by acquiring a number of US banks, including both FDIC transactions and non-bank financial companies in niche markets. With the Canadian dollar holding its strength, we will likely see more expansion into the US, an area that was previously seen as more challenging to penetrate with the weaker dollar and historically prohibitive bank valuations. One leading banking analyst comments: "now is a good a time as any to leverage that into growth opportunities". Overall, the Big Six banks' assets invested outside of Canada and the US ranged from 2% to 26%, with Scotiabank holding the most assets invested beyond North America, largely focusing on Latin America and increasingly Asia.

But, with greater geographic expansion, comes greater global regulations and risks. Navigating political, cultural, economic and regulatory hurdles in international markets is critical for banks to successfully expand in chosen geographies. One analyst says the key to getting it right is "You need to have decent local roots. Local commitment is important, whether it be from a political, economical, [or] social perspective." For many banks, a baseline is a stable political and economic view. Yet, there's also the question of a broad range of macro-economic threats, such as rising public sector deficits and the ability to refinance debt, which could impact both the Canadian economy—and with it, Canadian banks— down the line.

Undeniably, the concern of a double dip recession impacting an already battered US housing market has some analysts and portfolio managers anxious about the impact on Canadian banks with US operations. Decreasing home prices will send more homeowners into negative equity and constrain consumption growth, bringing with it difficulties for banks and their government guarantors.

Domestically, Canada's largest banks continued to focus on their existing profitable operations and product offerings at home to grow their revenues. Many of our interviews pointed to the re-emergence of the wealth management segment as a key area to boost profitability, particularly given the banks' strong control over distribution channels and changing demographics. The importance of savings and retirement planning will become more significant as baby boomers near retirement and life expectancies increase. Not surprisingly, 2010 saw a number of acquisitions in the wealth management space; however, the number of independent players left in Canada are few, which could drive the banks to explore opportunities outside the country, particularly to those regions where similar demographics and opportunities prevail.

When it comes to domestic personal and commercial banking, undoubtedly an interesting year is before us. While a significant amount of the banks' earnings growth in 2010 was driven by consumer spending and increased borrowing, debt levels are currently at all-time highs in Canada. According to Statistics Canada, household debt in Canada surpassed the US for the first time in 12 years, with a debt-to-income ratio of 148.1% compared to 147.2% in the US. At the same time, with recent government announcements around clampdowns on the insurable mortgage market, changes are afoot that will dampen consumer enthusiasm for debt.

According to PwC's Consumer Lending Survey, out of over 600 Canadians, 67% are comfortable with their debt level, yet most (64%) intend to decrease this debt over the next 12 months, primarily by cutting back on, or deferring large-ticket items such as autos, home electronics and housing upgrades. As customers' willingness to spend and borrow decreases, by necessity, so too will the banking sector's earnings growth in these areas.

Some banks are focusing on strengthening their core consumer offerings, while others are expanding their product lines into other areas, such as integrated lending products. The fallout from the financial crisis is giving cause for banks to steer back into debates with regulators to re-enter the auto leasing space, an area that was previously off limits, yet could expand the banks' product offerings and be generally favourable to the market.

Several analysts also believe that increased foreign interest for Canadian companies, particularly in Alberta and the resources sectors, will boost banks' revenues from mergers and acquisitions (M&A) activity. "Our economy has done well to attract foreign investment. When you think of the pace and the role Canadian banks will play in M&A activity, it's a positive catalyst," says one banking analyst. The recent proposed merger of the TMX Group (which operates the Toronto Stock Exchange) and the London Stock Exchange Group would create the largest venue for global listings for natural resources, mining, energy and clean technology. This is a testament to the attractiveness of the resource sector and the place it plays within the Canadian capital markets.

With this heightened focus on business, analysts and portfolio managers see the commercial and small business segment growing at a faster rate than personal banking. PwC's Global CEO Survey indicates that half of Canadian CEOs and 48% of global CEOs surveyed said they were "very confident" for growth in the next 12 months. Longer term, 95% of Canadian CEOs are confident for growth three years from now, similar to their counterparts from other countries (94%). This confidence could chalk up to bigger profits for banks as Canadian businesses begin to realize their growth aspirations and turn to the country's strongest source of capital to help get them there.

Driving the innovation engine

As the consumer and business world continues to evolve, innovation is becoming imperative for banks to move forward. One banking analyst comments: "we have to grind forward and grow our business, prove ourselves in this new environment". Innovation is critical to help cut costs; respond to changing consumer and business expectations, particularly among different generations; and create the agility needed to compete. And, the industry couldn't agree more: according to our recent Global CEO Survey, 87% of banking and capital markets CEOs surveyed believe that innovations will lead to operational efficiencies; and 64% also believe that their IT investments will help them tap into new marketing and transactional opportunities.

So, what's driving innovation? Operationally, Canada's banks are looking inwards at the costs of their networks to make sure they're running as efficiently as possible while still delivering the best customer experience that exceeds expectations. Outsourcing has long been a reality, and labour arbitrage and service effectiveness continue to be the main catalyst in sending core operations outside of the organization. But, other innovative models to acquire scale benefits or drive revenue are still evolving. For many banks, co-sourcing and joint ventures in areas of operation where they don't compete (based on product or client service) are emerging. New global centres of excellence focus on streamlining service, while creating a new reality in efficiency and effectiveness. Increasingly, such centres are popping up at those banks with broad geographic footprints to leverage time zone differences, skill and labour in critical markets to achieve scale-back benefits and efficiencies.

The quick pace of new, emerging technologies is an imperative as Canada's banks approach innovation with an emphasis on customer experience. More and more clients are looking to interact through mobile and digital technologies, such as smart phones and tablets—and expect their bank to be onboard. Just as we saw Canadian banks welcome and promote innovation through the online experience some 15 years ago, today they're investing in new digital technology and applications to improve the customer experience across all channels in a very integrated manner—branch, web, call centres and mobile banking. For example, many banks are enabling their mobile workforce with sophisticated tools. Whether it's an investment advisor or a commercial banker, providing on-site and on-demand advice using digital devices is becoming the new battlefield for many segments. Further, all of the Big Six have launched innovative applications to help clients put banking at their fingertips, where we are really still in the early stages of this evolution.

Social media is spreading as a critical dimension to appeal to various segments of the banks' client base, particularly Gen X and Gen Y customers. Many banks have tapped into the root of what social media means to the community, pursuing strategies (through such tools as Twitter, Facebook, YouTube and LinkedIn) to directly communicate with clients: to recruit; build product awareness and start dialogues; showcase philanthropy; run contests and promotions; and, most importantly, create loyalty among the individuals following them. It is also breaking new ground in how banks report their earnings. Traditional annual reports presented only in a PDF format may soon be a thing of the past, as new interactive reports that incorporate video from bank executives, allow visitors to share content and are compatible with mobile devices create a fresh, unique experience for users. The time to take advantage of this captive—and ever expanding— audience is now; we have no doubt only seen the beginning of how banks plan to unleash the power of social media.

The evolving payments industry is also certainly top-of-mind, as customers and businesses alike demand more consumer-friendly payment options. For some this means opening up the doors to involve partnerships with other providers; others are looking inwards to upgrade their existing technology. Looking ahead, all banks will need to continuously reconsider how they can make these new technologies an integral part of their multi-channel strategy and if their legacy platforms can support innovation—or risk having their customers use alternative service providers.

When compared to historical levels, banks globally face a future of greater capital requirements, more liquidity and less risk taking. Canadian banks are in an enviable position compared to their global peers to continue to actively pursue their growth strategies, while navigating through regulatory reform. Just as we've seen with the positive results of the Big Six banks over the past year, there are opportunities for those who anticipate how business is changing and creatively search for value. The most successful banks are likely to be those that can make the most of their principal competitive strengths and focus on innovation to drive growth and efficiency further.

Want to learn more?

Visit and view our short video on the direction Canadian banks are taking.

Key banking and capital markets findings from the 14th Annual Global CEO Survey

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions