Loan-hungry Canadians to drive bank profits

Sun Feb 26, 2012 10:33am EST
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By Cameron French

TORONTO (Reuters) - Many Canadians blithely ignored warnings about record debt levels and kept borrowing this winter and that should underpin a strong performance by the country's banks, with quarterly profits seen in line with blockbuster results a year earlier.

Indeed a long-awaited slowdown in lending probably won't come under later this year. But just the prospect of a slowdown should be enough to keep a lid on the sector's shares even if the banks report strong fiscal first-quarter results starting next week.

"What you're going to see is it will be a decent quarter when you look at capital markets revenues and loan growth," said Brian Klock, San Francisco-based analyst at Keefe, Bruyette & Woods. "But we kind of think the forward-looking commentary from the (bank conference calls) are going to be more important."

For more than a year analysts have predicted a marked slowdown in consumer loan growth, but it has yet to materialize.

Despite warnings from Bank of Canada Governor Mark Carney and Finance Minister Jim Flaherty that household debt is hitting dangerous levels, Canadians are still borrowing, drawn by near record-low interest rates.

Last week, the central bank warned again about rising household borrowing, which has put Canada's average debt-to-income ratio at 153 percent, above that of the United States.

"There's a disconnect between what the policymakers want the Canadian consumer to do and what the Canadian consumer is willing to do," said John Aiken, analyst at Barclays Capital.

The banks, meanwhile, have done little to discourage the borrowing spree.   Continued...