Canadian banking and lending 2013: A mid-year pulse check


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Early 2013 data indicates that we’ll see a strong Canadian credit market this year. Business lending is on the rise. Canadian banks are increasingly keen to lend, while Canadian companies are looking for additional funds to boost liquidity and seize investment opportunities. It’s a good sign for Canada’s banks — and Canada’s economy overall.

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Canadian banking and lending 2013: A mid-year pulse check

  1. 1. Canadian banking and lending 2013
  2. 2. Overview The Canadian credit market The proof is in the data Term loans and asset-backed lending are popular The high-yield market is seeing big growth Lending criteria are loosening. A little. But challenges remain Capital requirements are rising And then there are consumers What’s next?
  3. 3. The Canadian credit market Canadian banks are keen to lend. It’s a good sign for Canada’s banks – and Canada’s economy. Canadian companies are keen to borrow.
  4. 4. The proof is in the data Total business credit Short-term business credit Long-term business credit Bonds and debentures year-over-year 7.7% 12.2% 8.3% 9.4% Note: Data covers January to April 2013. Source: Bank of Canada.
  5. 5. Term loans and asset- backed lending are popular Term loans are enabling banks to deploy their capital more efficiently. Attractive pricing is luring businesses to ABL lenders.
  6. 6. The high-yield market is seeing big growth Why? Little M&A activity, low yields and many more investors. In 2006, there were 20 investors for high-yield offerings. Now there are more than 100. 20 investors 100+ investors
  7. 7. Interest rate yields and spreads remain low • We’re seeing tighter spreads for investment and non-investment grade credits. • Banks haven’t reduced pricing as much as institutional investors, however. • Bank paper is still ~50bps higher than before the credit crisis. • Why? Basel III capital requirements and persistently high funding costs.
  8. 8. The institutional market for high- yield and term loan B is aggressive The average yield-to- maturity for newly issued BB credits is down to 3.1%, down from 5.0% a year ago. For term loan B credits, it’s dropped to 4.6% – down from 6.6% a year ago. Source: LCD Weekly Wrap 3.1% 4.6% 5.0% 6.6%
  9. 9. Credit structure is loosening in both bank and institutional markets. Why? Heavy competition. Cov-lite deals are making a comeback in US markets. And cov-lite features are starting to show up in Canadian deals. Lending criteria are loosening. A little.
  10. 10. But challenges remain The Canadian banking sector is in good shape. But regulatory changes and market shifts are creating new challenges.
  11. 11. Canadian banks are adopting Basel III ahead of schedule, increasing their tier one and total capital ratios. The Big Six banks are also increasing their capital to meet additional OSFI requirements. The result? More capital held in reserve – and greater pressure to maintain risk- adjusted returns. Capital requirements are rising
  12. 12. And then there are consumers Mortgages and consumer lending have driven bank revenue and profits for years. But that may start to change. Some key real estate markets may be poised for a correction. The federal government has taken action to cool down mortgage borrowing.
  13. 13. And then there are consumers As well, consumers are starting to heed warnings about high debt levels. They’re borrowing less and paying down more. This shift will put even more pressure on banks to take action to maintain returns.
  14. 14. What’s next? Corporate borrowers will focus on ensuring liquidity and extending maturities on long-term debt. We’ll see more refinancings as companies capitalize on favourable market conditions.
  15. 15. What’s next? Banks will compete ruthlessly for corporate lending. Price wars may loom. Lending criteria may loosen further. And some banks will respond to the need for growth by rethinking their business models and operations – tackling their challenges in creative, innovative ways.
  16. 16. For more information on how Deloitte can help, please visit
  17. 17. Deloitte, one of Canada’s leading professional services firms, provides audit, tax, consulting, and financial advisory services. Deloitte LLP, an Ontario limited liability partnership, is the Canadian member firm of Deloitte Touche Tohmatsu Limited. Deloitte operates in Quebec as Deloitte s.e.n.c.r.l., a Quebec limited liability partnership. Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee, and its network of member firms, each of which is a legally separate and independent entity. Please see for a detailed description of the legal structure of Deloitte Touche Tohmatsu Limited and its member firms. © Deloitte LLP and affiliated entities. 13-3477