Banks Are Very Concerned About Your Ability to Make Payments
In the first quarter, Canada's major banks showed they can handle tough economic times, but they are also setting aside more money for potential bad loans.
All six of the biggest banks in Canada are preparing for more credit losses. This means they are being careful because of high interest rates, challenges in the commercial sector, and the uncertainty of the economy.
Here's a quick look at how much money each bank has set aside for potential loan losses compared to last year:
- Royal Bank of Canada (RBC): $813 million, up 53% from last year
- Scotiabank: $962 million, up from $638 million
- BMO: $627 million, up from $217 million
- TD Bank: $1 billion, up from $690 million
- CIBC: $585 million, up from $295 million
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- National Bank: $120 million, up from $86 million
In total, these top banks have put aside around $4 billion for potential loan losses. They are worried because interest rates and inflation are high, making it harder for Canadians to pay back loans.
Canadian consumer debt reached a record $2.4 trillion in the last quarter of 2023, up 2.9% from the previous year. There are also concerns about the commercial real estate market, especially office spaces that have changed since the pandemic started.
During the COVID-19 pandemic, historically low interest rates led to a surge in personal and business savings. As a result, financial institutions adopted a more relaxed approach to managing cash.
But now that those savings are being spent, banks are treating cash as a top priority. There’s a strong emphasis on accumulating funds
Despite these challenges, some banks are optimistic. RBC's chief risk officer, Graeme Hepworth, believes the economy is looking positive. He said that people are gaining confidence that interest rates have peaked and that the chances of a severe economic downturn are decreasing.
Is the $4 billion set aside by the banks reasonable given the current conditions? Give us your thoughts!!!
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