Canada banks top expectations despite lending crunch

Thu Feb 28, 2013 5:38pm EST
 

By Cameron French

TORONTO (Reuters) - Three of Canada's top banks posted stronger-than-expected quarterly profits on Thursday as they relied on lower loan-loss provisions, cost-cutting, and stronger international revenue to offset slower growth in domestic consumer lending.

Royal Bank of Canada and Toronto-Dominion Bank, the country's two largest banks, both raised their quarterly dividend. No. 5 lender Canadian Imperial Bank of Commerce left its payout unchanged, prompting investors to pull its shares lower.

With signs emerging that a long-awaited slump in personal lending and mortgage growth began to take hold in the fiscal first quarter ended January 31, RBC relied heavily on wholesale banking revenues to fuel its profits. TD enjoyed shrinking loan-loss provisions, stronger business loan growth, and worked hard to control costs.

"We are starting to definitely feel a slowdown in the consumer lending side, and I think you'll see a gradual slowing of the (mortgage) lending number over the course of the year," TD Chief Financial Officer Colleen Johnston told Reuters.

The banks have warned of the lending slowdown for more than a year, based on signs that Canada's once-torrid housing market is cooling and on a rise in consumer debt levels to record highs, suggesting a period of deleveraging may be overdue.

Growth in TD's Canadian retail lending slowed to a meager 5 percent on the year, with loan margins narrowing because of low interest rates. RBC posted 6 percent growth in Canadian lending on the year, but growth slowed to less than 1 percent compared with the fourth quarter of last year.

CIBC saw mortgage volumes fall due to its decision to close its discount FirstLine mortgage wing last year, but the move allowed it to raise its share of higher-margin loans.

GROWTH SLOWS, BUT PROFITS SURGE   Continued...

 
Buildings are seen in the financial district in Toronto, January 28, 2013. REUTERS/Mark Blinch