Executives at Canada’s Big Five banks are acknowledging the economic outlook is becoming cloudier, but took steps during earnings calls this week to assuage any concerns about the financial sector’s ability to navigate those looming headwinds.

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Cloudier economic outlook isn't denting the confidence of Canada's big banks Back to video

“There’s no doubt we’re all in a very fluid environment,” Victor Dodig, president and chief executive officer of Canadian Imperial Bank of Commerce, told a Thursday morning conference call after CIBC reported second-quarter results that missed expectations, in part due to the impact of the bank’s acquisition of a Costco credit-card portfolio.

Dodig said Russia’s invasion of Ukraine had added geopolitical tension to the brewing mix of issues facing the world economy.

“Beyond its human impact, the conflict has exacerbated COVID-related supply chain disruptions and contributed to inflationary pressures,” he said. “Central banks around the globe are responding by raising interest rates to cool inflationary pressures, which is leading concerns to an economic slowdown.”

Dodig said the bank could shoulder a softer economy and Laura Dottori-Attanasio, CIBC’s group head of personal and business banking in Canada, added the lender was confident in the health of consumers and their ability to meet debt payments.

“We continue to see I would say very prudent client behaviour,” Dottori-Attanasio said. “When we look at our whether it’s cards or other unsecured lines, and we look at utilization rates … things are actually much better than they were pre-pandemic and so, utilization rates are down about 20 per cent.”

Royal Bank of Canada chief executive Dave McKay also addressed the mix of forces complicating the economic picture.

“From elevated inflation, a rapid tightening of monetary policy, supply chain disruptions and shortages in energy, labour and housing supply, central bank auctions are having a profound impact on both bond and equity markets and in turn impacting capital markets activity,” McKay said. But he noted that there were positive forces at play too.

“Given low unemployment, rising wages and elevated liquidity, we believe the key ingredients are in place to help mitigate any sustained slowdown.”

RBC’s chief risk officer, Graeme Hepworth, said the bank was nonetheless positioning itself to address the headwinds.

We believe the key ingredients are in place to help mitigate any sustained slowdown

Dave McKay, RBC chief executive

“Central banks have increased interest rates and we expect more increases are on the horizon,” Hepworth said. “To account for a deteriorating macroeconomic outlook, we have recently adjusted our provisions on performing loans. Our base case still calls for positive economic growth (and) we have increased both the severity and likelihood of our downside scenarios, which is partially offset the COVID-19 related reserve release.”

Hepworth said the net result was a $504-million release in provisions on performing loans for the second quarter.

Toronto Dominion Bank also brushed off concerns of heightened uncertainty in an afternoon conference call, saying the bank’s sustainable business model would allow it to handle any challenges.

“We’re also seeing elevated uncertainty, higher inflation, and increased risk of a potential economic slowdown,” TD president and chief executive officer Bharat Masrani said during Thursday’s conference call. “With a disciplined risk management approach and sustainable business model, TD is well-positioned to face the challenges and seize the opportunities that lie ahead.”

The comments came after the three banks reported earnings for their fiscal second quarters.

CIBC reported adjusted earnings of $1.65 billion or $1.77 per share for the three months ending April 30, down from the $1.79 reported a year earlier. The bank said its results were hit by the $106 million (or $77 million after tax) in acquisition and integration costs on top of other accounting adjustments and credit loss provisions tied to the Canadian Costco credit-card portfolio the company took over in September 2021.

RBC, meanwhile, saw net income rise six per cent year-over-year to $4.3 billion, with adjusted diluted cash earnings of $2.99 per share coming in ahead of estimates.

Toronto-Dominion Bank had a mixed second quarter, seeing its adjusted net income slip two per cent to $3.7 billion or $2.02 per share as rising costs partially offset stronger revenues.

TD was the only one of the Big Five that did not raise its dividend this quarter.

The confidence of the CEOs whose banks reported Thursday echoed that of Scotiabank president and chief executive officer Brian Porter, who noted the macroeconomic backdrop was still largely positive after his bank reported results on Wednesday.

“Despite the macroeconomic and geopolitical uncertainties in recent months, we are encouraged by the resilience of our businesses, and the progress of our organic growth initiatives aimed at enhancing customer experience, operating efficiency, and future growth for the bank,” Porter said during a conference call. “Strong customer balance sheets, combined with prudent expense management, positions the bank very well to grow its earnings.”

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