Canadian Bank CEOs Weigh In on Consumer Credit
Canadian Bank CEOs Weigh In on Consumer Credit

TORONTO—Canada’s biggest banks say consumers are reaching the limit on how much they can afford to borrow, and that’s likely to slow loan growth this year.

Royal Bank chief executive Gord Nixon said Tuesday he expects Canadian households will begin to show more restraint.

“In terms of pure consumer lending [growth], we’ll probably be operating at a much lower rate than we have been over the last few years,” he told a bank industry conference.

“There’s no question that the consumer has been leveraged up.”

Canadians have taken advantage of low interest rates for years, borrowing record amounts, but leaving them vulnerable.

Policy-makers have expressed concern that a sudden rise in interest rates would leave many consumers unable to meet their payments, potentially causing a fallout that ripples through the housing market and consumer spending.

Statistics Canada reported last month that household debt touched an all-time high during the third-quarter of 2013, inching up 0.6 percentage points to 163.7 percent over the summer months. The increase means Canadians owe nearly $1.64 for every $1 in disposable income they earn in a year.

Nixon said he expects consumer lending growth to remain tight, rising by mid single-digit levels, for “an extended period of time.”

“What would be the most healthy outcome for the marketplace is for there to be a steady, orderly increase in interest rates to a reasonable level,” he said.

Bank of Montreal chief executive Bill Downe said a slower increase in the debt levels of Canadians would help shift away from a dependence on the consumer for overall economic growth.

He expects U.S. business loans will become a more dominant force in the banking industry this year.

“We’re going to benefit from continued strong commercial and industrial loan growth and I think that’s going to spill over into Canada,” he said.

Downe said as consumers borrow less they will focus more on saving, which will benefit the wealth management business.

Scotiabank chief executive Brian Porter said he’s comfortable with the credit quality from its customers and doesn’t see any major concerns developing in the real estate market either.

“We would view supply and demand relatively in check across the country,” he said.

With files from The Canadian Press

  • Canukistani

    The availability of loans are the side of rising consumer prices that have been just under the surface for awhile and so I think we usually give that less attention than we should. To a large extent, that’s what helps drive up the cost of living. As long as borrowing is easy and cheap, up front anyway, we tend to pay less attention to prices.

    And to those that think the price of a lot of things we regularly buy is really going down, I’d suggest you take a look at the quality of what you’re buying. On those items where the price is steady or even decreasing slightly, the quality of those items is decreasing even faster. To me, paying the same amount for an inferior product that you’ll have to replace sooner is still a price increase.

    When the price of something goes up, whether it’ a car or house or any big ticket item it doesn’t have quite so much impact as long as we can still get the money to buy it, even if we have to borrow that money. It only becomes really painful when we have to say no, we can’t afford it. And we’ve been strongly encouraged to never say that.

    These days we’re encouraged in every way that advertisers can think of to buy, buy, buy. It’s good for the economy they say, and they all but shove the money into your hands to buy whatever they’re selling today. Hardly a week goes by when I don’t get an offer for yet another credit card in the mail or a store.

    It’s actually harder to avoid having stack of credit cards than it is to collect them. They don’t want you thinking about what’ll happen when the bills start coming in though. At that point you become a deadbeat and it’s all your fault.

    Well, I suppose some of it is, but lot of it is on the shoulders of the banks and businesses that hand us the credit cards and tell us to just go ahead and enjoy them without worrying. They advertise at us incessantly and then blame us for doing what they want us to do.

    When I first started to work and get out on my own, quite a number of years ago, getting a loan was like having a job interview. You were interviewed and your finances were carefully scrutinized to determine whether you’d be able to pay it back in some reasonable period of time. The difficulty of that process made you give it some thought before you applied for a loan and most times, you’d decide to wait to make a purchase unless it was really necessary.

    I think that to get off of the treadmill we have to move back in that direction to whatever degree we can manage. Until enough of us are willing to say, ‘No thanks, we’ll wait until we can afford it’, we’ll be on this downhill slide. To make the banks and business more responsive we have to stop doing what they want us to do, until they listen.

    In the short-term that may, mean some sacrifice. We may have to use that car another year or two or put off that computer upgrade for awhile, but in the end, if business wants to stay in business, they’ll have to do it in a way that works better for us.

    Then, the banks will stop telling us that we’re borrowing more than we should while still pushing us to borrow more.

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