Canadian banks maintain expense guidance despite high inflation expectations

Written by on January 10, 2022

January 10, 2022

By Nichola Saminather and Sohini Podder

TORONTO (Reuters) -Royal Bank of Canada, Bank of Montreal and Canadian Imperial Bank of Commerce (CIBC) on Monday maintained their forecasts for growth in expenses this year despite expectations that inflation will remain elevated.

“The 2% inflation in the pre-pandemic world is something of the past,” CIBC’s CEO, Victor Dodig, said at the RBC Capital Markets CEO conference.

CIBC, Canada’s No. 5 bank, said last month it expects mid-single-digit expense growth in fiscal 2022, after reporting a 13% increase in the fourth quarter, the highest in the industry.

“Transforming a bank to compete into the future requires investment … that pays off in terms of revenue growth in the short term and … a better cost base over the medium- to long-term,” Dodig said.

The major Canadian banks broadly posted expenses that were higher than analysts had expected in the fourth quarter and some expect continued disappointments on that front in the first half of 2022.

Surging inflation resulting from supply-chain constraints has roiled economies globally, and the Bank of Canada said last month it expects inflation to stay above target into this year and only fall back toward 2% by the end of 2022.

Royal Bank, Canada’s top lender, still expects low-single-digit growth in non-interest expenses for fiscal 2022, and can slow down some investment and take out costs if needed, Chief Executive Dave McKay said.

Royal Bank continues to seek growth in the United States, and is interested in acquisitions of wealth distribution businesses in the United States and Europe, and commercial banking businesses in the United States, McKay added.

“We’re not missing any capabilities, this is about scaling in to new geographies in the United States, about scaling in ability, therefore we’re very selective,” he said.

Bank of Montreal said late last month it would acquire BNP Paribas’ U.S. unit, Bank of the West, for $16.3 billion in its biggest-ever deal, and sources told Reuters that Toronto-Dominion Bank is also on the hunt for acquisitions there.

BMO CEO Darryl White also reiterated the bank’s forecast for flat expense growth, helped by the impact of the sale of its EMEA business.

(Reporting by Nichola Saminather in Toronto and Sohini Podder in BengaluruEditing by Matthew Lewis)

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