Monday, April 02, 2007

PwC: Perspectives on the Banking Industry

Investment Executive, 2 April 2007

Canada’s Big Six banks overcame many challenges in 2006 to earn a combined net income of over $19 billion — 50% higher than 2005 according to Canadian Banks 2007, PricewaterhouseCoopers’ annual review of the banking industry.

“Canadian banks showed they can prosper in the face of change in 2006. The year was a challenge on several fronts but they still turned in stellar results,” says Diana Chant, partner and leader of the PwC financial services practice in Canada. “The challenges are not over — regulatory issues and increased competition will only intensify in the coming years. Canada’s banks will need to stay nimble and continue to adapt. But the earnings in 2006 speak for themselves.”

Spending by Canadian banks on regulatory and compliance requirements has been substantial, and resources had to be pulled from other projects to deal with them. More resources will be needed with the changes that will be brought by International Financial Reporting Standards and impact of Basel II. European banks have already dealt with IFRS and found the effort should not be underestimated.

The race for customers in the Canadian banking industry is also gaining speed. And competition is coming from both smaller players and global giants. The number of foreign banks in Canada has been steadily increasing in recent years. Many are niche banks that focus on specific services such as credit cards or mortgages — they do one thing and they do it well. At the global level, Canada’s big six banks should be competing against other large global financial institutions.

“Banks are focusing on customers like never before. Satisfied customers provide a stable base of income and the banks realize the retail market is the new battleground,” says Chant. “The Big Six are expanding their services across the board — and are opening new branches for the first time in a long time. Banks are realizing that branches are an excellent distribution channels for their products and services and want to cash in on the opportunities.”

Canadian Banks 2007 looked at other serious challenges banks will face in the coming years, including:

— protecting customer information from security breaches;
— fighting the global war for talent;
— better serve customer needs;
— becoming more efficient and productive to stay cost competitive with their global rivals.

“All of Canada’s banks will try to improve productivity and get leaner so they can acquire, integrate and grow,” says Chant. “They have to compete with players on a global scale but they have a fighting chance — especially given Canada’s strong dollar and economy.”

Canadian Banks 2007: Perspectives on the Canadian Banking Industry, by PricewaterhouseCoopers