GDP, mortgage debt growth slowdown on the horizon for banks

However, banking services sector is still projected to post better-than-expected profits

GDP, mortgage debt growth slowdown on the horizon for banks
Canadian banks are projected to experience a slowdown in GDP growth this year, a development mainly fuelled by leaner consumer and business credit growth.

In its first outlook for the banking services industry, The Conference Board of Canada announced that the sector is still predicted to post better-than-expected numbers, with profit margins remaining vibrant.

“Despite a sluggish Canadian economy, the banking industry managed a strong performance in 2016 largely due to the robust growth in the housing sector and equity markets,” Conference Board senior economist Kristelle Audet said. “However, with growth in consumer and business credit expected to weaken going forward, the industry will expand at a slower rate than what we have seen in recent years, although it will still outperform the overall Canadian economy.”

“Despite slower growth, the industry will keep its costs under control, allowing pre-tax profits to surpass $80 billion in 2017,” the Conference Board stated.

Growth of mortgage and non-mortgage debt has also been projected to decrease “with the housing market forecast to cool as a result of new taxes and tightened mortgage-lending rules combined with interest rates likely to rise at modest pace starting in 2018.”

“In fact, this year, for the first time in 25 years, growth in disposable income should outpace growth in consumer debt,” the Conference Board said. Growth in the industry will thus be limited by more moderate growth in both consumer and business credit. Given the more challenging business environment, the industry is undertaking significant efforts to keep costs growth under control, which will allow it to maintain a healthy profit margin throughout the forecast.”

“However, there are still risks to this outlook. A correction in either the housing or equity markets would have a significant impact on the industry's performance.”

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