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Tracking the consumer evolution of financial services

Archive for the ‘Canada’ Category

CIBC release first Canadian bank iphone app

It was October 2009 when I posted ‘who will be the last bank without an iphone app’.

For Canada I should have said who will be first, and its been a long time coming but it is CIBC.  After an initial delay in December, it is released today.  No bill payment yet, but it does have EMT (Canadian p2p payments between participating banks).

Kudos to CIBC.


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Written by Colin Henderson

February 2, 2010 at 21:41

Posted in Canada

The impact of global fiscal stimulus is good for Canada | Bank of Canada

Canada has been receiving kudos for a job well done throughout the crisis of the lest 2 years.  This analysis from Bank of Canada has a telling paragraph (highlighted) that suggests there are good classic economic reasons for Canada being where it is, and over-confidence would be a bad idea.

The Power of Many:  Assessing the impact of Global Fiscal Stimulus | Bank of Canada

Table 4 shows that, on a regional basis, the United States, as a large and relatively less open region,
benefits the least from a global stimulus. Moreover, the impact of different measures depends on its
trade patterns. The United States is a net exporter of investment goods and commodities other than oil, but a net importer of consumption goods and oil. The United States therefore benefits more from a global stimulus when global demand is slanted towards its comparative advantage in trade (e.g.,
investment goods). Japan also has a relatively closed economy, but its trade patterns are somewhat
different: it is a large net exporter of consumption and investment goods, and an importer of oil and
commodity goods.

In contrast, Canada is a small open economy and a net importer of investment and consumption goods, but a net exporter of oil and commodities. As such, it profits greatly from the global stimulus (Table 4), the multipliers being twice as large as in the case of an isolated stimulus, owing in part to a substantial improvement in its terms of trade derived from the increase in oil and commodity prices. For similar reasons, the commodity-exporting region also benefits from a global stimulus.

Emerging Asia is highly open to trade, a net importer of oil and commodities, and a large net exporter of consumption goods (Table 4). Thus, it experiences contradictory forces to its terms of trade under a global stimulus. Moreover, the presence of a large contingent of non-Ricardian agents results in almost no change in private consumption and investment under a fiscal stimulus, either local or global. The remaining countries benefit less from a global stimulus, owing to the large size of this region (39 per cent of global GDP).

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Written by Colin Henderson

January 27, 2010 at 18:32

Posted in Canada, economy

Consumer mindsets in North America have shifted permanently with regard to finances

After my last post, I thought it better to follow up with some facts to support my contention that this economic recovery is L shaped in Canada and US.  This is not meant to be an economic projection, and I leave that to the professional economists.  However in terms of planning, banks ought to consider the high probability of a scenario where the reduction in economic activity will level off but hardly see growth in the near future.  This will be driven by consumer confidence and frankly their financial circumstances.

If we go back to the root cause of the recession it remains this;   a dramatic drop in consumer asset values resulting in leverage that is too high.  Layer in the concern about job security, and the real increase in unemployment, we must look carefully at ability to manage the debt based on current income, and the effect of that on the business of banking.

Here is the ratio of debt to disposeable income in Canada and US at end of 2008. [source: CGA Association Canada & Federal Reserve Bank of San Francisco]

Canada              US

%                                  136.5%             130%

The first surprise is that Canadians are more highly levered than Americans.  The CGA report makes these points amongst others:

… prospects of improving households’ financial situation in the near future are low. A balanced approach to spending, saving and paying down debt may be a desirable feature of households financial behaviour in the near future.

Hardly earth shattering stuff but the consequences remain that strategies need to account for this new consumer mindset in North America for the next few years.

Written by Colin Henderson

June 22, 2009 at 14:47

Countries that are least affected by the Economic Crisis

An interesting survey of business reaction to the crisis, and which countries are least impacted.  Full ranking follows the map.  This explains a lot in terms of peoples reactions.

Time will tell if this reaction remains constant, and what were the contributors to and rivers of this reaction.


Countries that are Least Affected by Recession | digital inspiration

The data is based on the results of a business confidence survey that was done on international business people of 24 nations to identify which countries they believe are surviving the crisis the best.

Researched by Nobuyo Henderson


Written by Colin Henderson

May 31, 2009 at 21:11

Canadian banks will require more capital to remain within targets

The IMF have released their working papers following their analysis of Canadian Banks.  Notwithstanding the positive comments about Canadian banks financial position entering the crisis, there remains potential for a requirement for increased capital as negatives in Canada could decrease bank capital by 2.5% – 3.5% over next year or two.

The IMF employed the American stress test approach to Canadian banks in this exercise.

Here is the current position:

can banks IMF

There are two ratios being watched – Tier 1 and Total Capital.  In a nutshell and worst case scenario, IMF are saying if 2.5% or 3.5% is taken off either ratio, most banks risk being below the Canadian targets shown at the foot.

The potential negatives on bank capital were recognised as:

  1. Western Canada house values having some more downward corrections anticipated.  Eastern Canada is about right in their view.
  2. collapse of auto sector
  3. variances in commodity prices
  4. continued high unemployment

The external influences on Canada are summarise in this graphical story line.  Here is the full paper.  Canada: 2009 Article IV Consultation—Staff Report cr09162

can external imf1

can external imf2

Written by Colin Henderson

May 25, 2009 at 10:37

Posted in Canada, economy

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What makes Canadian Banks different in this crisis? | OECD

This 21 page document reviews the circumstances prior to the crisis of Canadian Banks and other OECD Banks.  The relative abundance of retail deposits (compared to more volatile wholesale deposits)  seems to have been key for the resilience of Canadian banks, supplemented by a risk averse financial culture.

The differences from the summary were as follows – Canadian Banks were:

  1. better capitalised
  2. Capital ratios before the crisis were a key determinant of bank performance
    during the turmoil; and Canadian banks had ample capital

  3. more liquid
  4. Compared to OECD peers, Canadian banks had slightly above-average balance
    sheet liquidity

  5. enjoyed relatively more retail deposits
  6. During a liquidity crisis, access to stable funding is key to survival; Canadian
    banks had a high ratio of retail to wholesale deposits

In addition and as discussed here before, the risk tolerance in Canada is much lower than elsewhere, and this manifests across several areas, highlighted in the report.

7. Regulatory and structural factors contributed to the resilience of Canadian banks by reducing their incentives to take risks. Canadian capital requirements are significantly more stringent than Basel minima (national targets of 7 percent for tier 1 capital and 10 percent for total capital,  versus 4 and 8 percent prescribed by the Basel Accord).

Banks are also subject to a maximum assets-to-total-capital multiple of 20 (corresponding to a leverage ratio of 5 percent). Besides providing an enhanced cushion, stringent capital requirements have beneficial incentive effects: they impede rapid balance sheet growth, restrict wholesale activities, and limit foreign expansion to niches where banks have clear competitive advantage not related to low cost of capital.

Notable structural factors in Canada include high franchise values, a mortgage market characterized by prudent underwriting, and an overall prudent and conservative culture in the financial sector. Limited exposure to U.S. assets was a key additional factor behind the resilience of Canadian banks to the crisis.

Canada: Selected Issues | OECD

Written by Colin Henderson

May 22, 2009 at 20:17

Posted in Bank+of+Canada, Canada

Speculation mounts about Virgin next move for banking in Canada

There appears to be little more than speculation, and floating of ideas here, but nonetheless Virgin have just announced intention to launch a direct bank in UK, and Branson has noted his broad intention to get more involved in financials services.

Something to keep our eyes on.  A move such as this is good for financial services, and good for the broader industry including system vendors, such as my friends at SIT, because any new set up will need the flexibility of a web based approach coupled with solid banking and investment systems.

Virgin’s next chapter: Is now the time to bank in Canada? | Globe and Mail

In the contrarian view of Sir Richard Branson’s conglomerate, today is an opportune time to start a bank. And after floating the idea publicly more than a year ago of launching a Web-based bank for Canadians, Virgin is close to making a final decision, following news last week that it is selling its stake in Virgin Mobile Canada to BCE Inc.’s (BCE-T) Bell Mobility.


Written by Colin Henderson

May 21, 2009 at 09:57

The Canadian bank model secret? | risk aversion

The general theme that the ‘Canadian Bank model’ is superior has constantly intrigued me, having been personally involved there.

Size and Diversification: They are smaller and less diversified, so some risk mitigation appears there. This is probably the biggest reason.

Number: There are only five of them, of any consequence, so a couple of regulators can do a lot of supervision there.

Loan restriction: there is a restriction on loan participation relative to capital.

Purdy Crawford/ Pan Canadian Investments: The Canadian government did presciently freeze $35 billion in derivatives back in 2007.

But no … in aggregate there is no enormous winning theme, or singular secret in Canada.  In typical Canadian form its the softly softly approach, and David Olive in todays Star sums it up nicely with this quote below.

They are just plain old fashioned ‘risk averse’ supplemented by being too small (asset size is whats important here, not market cap) to take part in large scale international risky investments.

Obama eyes Canada as bank model | The Star

As a result of their largely shunning the purchase of multimillion-dollar packages of U.S. junk mortgages, Canadian banks have earned international acclaim for their continued sound condition. But that had nothing to do with the Canadian banks’ size or diversity of functions, and everything to do with prudent risk decisions and scrupulous regulatory supervision.

Written by Colin Henderson

May 4, 2009 at 16:00

Bank of Canada Monetary Policy Report Apr 2009 sees economy worse that projected, but consumer credit is growing

Bank of Canada has released its quarterly Monetary Policy report.  It is useful here in the context of Canada and the impact on consumers, particularly as Canada has been painted as being in better shape than other countries.  Consumer confidence represented by purchasing is down, but consumer credit is still growing at a slower pace.  They question will be to what extent credit defaults arise over upcoming months.

Speech and Report:

Global industrial production has fallen sharply …


… and Canadian GDP has fallen sharply too, and worse than predicted earlier ..


… while the Canadian hit on wealth has been less than the US the impact on Canadians saving (spending less) is similar.



Bottom line – the impact on Canadian banks and merchants must be to expect significantly less spending though to 2011 at the earliest.

Credit growth and credit conditions in Canada remain tight according to the report, although credit is still growing, albeit at a slower pace. 


C$ Billions Outstanding % Distribution 12-month  Dollar Change 12-month % Change 3-month % Change (annualized) 1-month % Change (annualized)
(C$ Billion)
Total household credit 1324 100 100.5 8.2 6.7 4
Consumer Credit (1) 416 31.5 29.3 7.6 9.4 5.8
Chartered Banks 299 22.6 36.6 13.9 13.1 6.7
Non-Banks* (2) 64 4.9 -1.4 -2.1 6.5 8.3
Loans securitized by banks and non-banks* 53 4 -5.9 -10.1 -9.9 -9.9
Residential Mortgage Credit 908 68.6 71.3 8.5 5.5 3.2
Chartered Banks* 435 32.9 -29.3 -6.3 -14.7 -26.7
Non-Banks* 187 14.1 8.5 4.8 4.1 3.4
Loans securitized by banks and non-banks:
NHA MBS program* 266 20.1 96.2 56.7 36.8 63.8
Other securitization products* 20 1.5 -4.1 -16.9 -15.3 -15.9

Written by Colin Henderson

April 23, 2009 at 14:32

Posted in Canada, economy

A new future based on a different revenue model is needed for banks

Something has been bothering me for some time, and now the planets are beginning to align.  One of the promises of Internet is a future which is more efficient.  This literally means less money changing hands to get things done. can occur with zero overt marketing costs, based on personal contribution of willing advocates.  Costs do not go to zero – it is not that simple – but costs are less than before by a considerable margin.

The Spider and the Starfish touched on this point in 2006.

“as industries become decentralised, overall profits decrease”

My summary at that time was:

The book rightly points out that in the decentralised world of internet, profits don’t just shift from old channels to new ones – they disappear. It speaks about CraigsList that diverted enormous amounts of classified ads from paying newspaper ads to free internet ads. Revenue disappeared. Recall that classified were a mainstay of newspaper revenue.

Granted the focus of the point and in reflection of much of the discussion in 2005 & 2006, was the survival of newspapers.  However the concept applies equally to Banks and that post noted the dropping interest revenue at banks despite the rapid growth in assets.

Results 1998 to 2005 for the six big banks:

Loan growth: + 33%

Deposit growth: + 49%

Interest income growth: – 3%

Banks have survived by adding non interest revenue otherwise know as fees. These are tough numbers. Traditionally banks made money facilitating depositors and borrowers, yet that equation produced a drop in interest income over the seven year period.

Strategic question: what if non traditional competition can facilitate the deposit/ loan relationship without the fees?

Relevance to Bankwatch:

That strategic question remains valid 2 years later.  If bank revenue from interest spread remains flat year over year despite growth in assets, that suggests a business model problem.  I posted yesterday about the state of the economy and the reality of a smaller economy than todays.  What if banks must exist within an economy that suggests consumers will pay 50% of that which they will pay today?  Where are the dramatic cost structural changes to operate in that new revenue model?

More on this to come.

Written by Colin Henderson

December 21, 2008 at 04:30

Posted in Business Models, Canada, economy

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