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.

1. Canadian banking
and lending 2013

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. 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. 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. 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. 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. 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. 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. 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. But challenges remain
The Canadian banking sector
is in good shape. But regulatory
changes and market shifts are
creating new challenges.

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. 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. 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. 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. 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. For more information on how
Deloitte can help, please visit
www.deloitte.ca

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