TORONTO, Feb. 27, 2012 /CNW/ - While Canadian banks continue to be the
envy of their global peers, regulatory demands, and a fragile global
economy will still make the next year a challenging one, says PwC in
its annual review of the banking industry.
The PwC report notes that the big six banks continued to show strong
earnings and Tier I capital growth over the past year and indeed since
the financial crisis. These capital ratios range from 12% to 14.7% and
position the banks well for upcoming regulatory changes. This was
achieved in spite of a continued soft global economy and several
acquisitions made by the banks, some without diluting shareholders.
"Last year Canadian banks presented solid results, primarily thanks to
their strong retail banking businesses and growth in loan portfolios,"
says PwC's Canadian financial services leader Diane Kazarian. "However,
2012 may see slowing growth in consumer credit markets and continued
pressure on margins as banks battle for market share."
Adds John MacKinlay, PwC's financial services consulting leader: "With
limited domestic acquisition and growth opportunities, banks will
continue to look for growth prospects. The challenge is that
regulatory uncertainty makes it more difficult to form an opinion on
the predictability of earnings, capital consumption and hence values.
Notwithstanding these challenges, the need for many global banking
institutions to recapitalize and release capital consumed by certain
businesses means that there will be interesting opportunities in the
"If you can get yourself past the regulatory uncertainty, the challenge
then becomes one of agreeing on price and given the market conditions
there is often significant differences of opinion between buyer and
seller. As this global restructuring will take years to unfold, the
Canadian banks have the luxury of being able to sit on the sidelines
and be very selective about their targets," MacKinlay says.
On the regulatory side, not only is uncertainty a key issue but so too
is the cost of additional reporting and compliance. Wholesale changes
to the regulatory system are being negotiated in the United States and
Europe, impacting not only Canadian banking operations in those
countries but also the way that they function at home.
The regulatory changes impact a multitude of aspects at the banks
including capital requirements, tax reporting, proprietary trading
accounts, and derivative transactions among others.
Bottom line, the top three issues facing the banks are regulatory
uncertainty, macroeconomic conditions and pressure to grow, says
Kazarian, and when growth becomes challenged cost management becomes
the order of the day. However, reigning in costs increases in
difficulty when new regulatory requirements add additional layers of
operational risk in systems and reporting.
The PwC report provides an in-depth report on each of the big six banks,
their performance and strategies for growth. For a copy go to www.pwc.com/ca/canadianbanks or contact David Rowney. The firm has also recently published its 15th Annual Global CEO Survey on the banking and capital markets sector. For
a copy of this report go to http://www.pwc.com/gx/en/ceo-survey/industry/banking-capital-markets.jhtml
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