Persistent regulatory reform, limited economic growth and shifting
consumer behaviours are shaping banks' future plans
TORONTO, Feb. 25, 2013 /CNW/ - Canadian banks experienced another strong
year in 2012-- the Big Six earned a combined $28.6 billion in net
income attributable to bank shareholders, translating into an average
17.1% return on equity (ROE). However, according to PwC's annual Canadian Banks: Perspectives on the Canadian Banking Industry report, Canadian banks must address persistent regulatory reform and
uncertainty, shifting consumer behaviours and the subsequent impact on growth -- all
in a limited economic growth environment--in order to see these strong
"Canadian banks are entering an era of a new normal," says Diane Kazarian, PwC's Canadian Financial Services Leader. "While they continue to
demonstrate their strength, the banks face conflicting expectations
from shareholders, consumers, regulators and central banks, all of
which add additional layers of complexity to the business of banking."
Banks are adapting to regulatory changes
Ongoing regulatory reform is part of the new normal for Canadian banks,
and additional rules are expected to keep coming for the foreseeable
future. In addition to changes to regulatory capital requirements,
banks are facing increased operational costs to meet these new
requirements -- such as overhauling IT systems and adding headcount to
new compliance functions—that can impact the bottom line. In order to
maintain current profit levels, this new reality is likely to lead to
changes internally as well. According to the 16th Annual CEO Survey, 63% of banking and capital markets CEOs plan to
implement new cost reduction initiatives and nearly three-quarters
(72%) are planning to change their organizational structure.
"The costs of implementing regulatory changes are unavoidable, so banks
must seize opportunities to streamline operations and ensure continued
productivity and optimization," says John MacKinlay, PwC's Financial Services Consulting Leader. "To create efficiencies,
for example, we recommend to banks that they bring all regulatory
projects together under a single control. This will help maintain
consistency in operations and costs, and not least of all, the customer
'New normal' means new business priorities and opportunities for
Interest rates are low, which, in prolonged periods, leads to net
interest margin compression and may put ROE at risk. And, while retail
lending did see some growth in 2012, this market appears to be reaching
its saturation point, in part due to the record high household debt
levels faced by Canadians. This cautious outlook for retail lending was
also a factor in the recent cut in credit ratings for the banks.
Still, the future does look positive overall for Canadian banks. The
change in the retail lending landscape presents the opportunity for the
Big Six to offer new services and focus on other profitable areas of
business. For example, commercial and small business lending, wealth
management, new insurance products and trading and investment banking
and are all avenues banks have the potential to capitalize on over the
next few years.
Another space in which Canadian banks are well-positioned to make
significant inroads is mobile payments. This is a competitive arena--
while payments used to be the banks' exclusive domain, now other
players are looking to capitalize on the opportunity for profit that
mobile and digital transactions provide. However, Canadian banks may
already have an advantage, as recent PwC research has shown that the
majority of Canadians would prefer that their mobile payments be
provided by their bank.
"Canadian banks need to make sure they have a seat at the table as the
landscape continues to alter," says Kazarian. "While changes are
certainly in store, there are new opportunities as well, and the Big
Six are in a strong position to pave the road ahead. Proactively
seeking out new growth drivers will help Canada maintain the resilience
and strength that has earned us worldwide admiration over the past five
About Canadian Banks 2013: Perspectives on the Canadian Bank Industry
Now in its 30th year, the report provides an analysis of each of the Big Six banks
(CIBC, Scotiabank, RBC, BMO, TD and National Bank of Canada) and
assesses their performance and strategies for growth. A copy of the
report is available here and can also be provided by the media contacts upon request.
About PwC Canada
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country are committed to delivering quality in assurance, tax,
consulting and deals services. PwC Canada is a member of the PwC
network of firms with more than 180,000 people in 158 countries. Find
out more by visiting us at www.pwc.com/ca.
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SOURCE: PwC Management Services LP
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