Canadian banks see revenue grow 6.1% to $159 billion in FY18

31 January 2019 4 min. read
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According to a recent analysis from PwC Canada, the Big Six Canadian Banks increased total revenues by 6.1%, reaching a collective $159 billion compared to FY17’s $149 billion.

Reports of banks’ demise have been greatly exaggerated. Though it makes for a bombastic news story to say that fintechs are wrecking – or will wreck – the industry, traditional banks in Canada are doing just fine right now. Open banking and easier access to third party financial services may be on the horizon, but that probably won’t significantly damage Canada’s Big Six anyway. And as yet, The Bank of Amazon is but a twinkle in the eye of the e-retail giant.

Barring a bandwagon jump on some insane financial product or the wholesale collapse of Canada’s society and economy, the group of BMO, TD Bank, CIBC, RBC, Bank of Nova Scotia (BNS), and National Bank of Canada (NBC) will be fine for many years to come.

A recent report from accounting and consulting firm PwC Canada has shed a little light on how Canada’s big banks have fared since financial year 2014. Let’s take a look.

Canadian banks continue to grow their revenue

Each bank has seen consistent revenue growth since 2014, with a 6.1% CAGR over that time span across the Big Six. Meanwhile, FY2018 saw a 6.1% increase in revenue over FY2017 (note: the financial year concludes Oct. 31). This outstripped the year-over-year growth of FY2017, which was 5.7%.

The leaders in revenue growth in FY18 were CIBC (9.5%) and NBC (8.4%). The pair also have the highest compound annual growth rates since FY14, at 7.5% and 7.0% respectively.

Meanwhile, revenue margin slightly improved in FY18, increasing by 30 basis points (bps), or 0.3% (each basis point is 0.01%). PwC Canada attributes the gain to revenue growth, where interest and fees grew at a faster rate than risk weighted assets.

Return on equity edges up

Operating expenses at the Big Six increased by 4.2% in FY18, up slightly from 3.9% in FY18. The PwC report does, however, note that the growth in expense was significantly lower than between FY13-16.

The Big Six lowered compensation growth to 3.2% in FY18 compared to 5.8% the year before – the slowest rate of compensation growth since FY13. FTE employee levels rose by 4.2%. The report notes that the average full-time equivalent (FTE) employee at the Big Six attracted $125,192 in FY18 – a 1.0% decline from the previous year, and the first decrease since FY14, according to the report.

Though technology costs increased across the board – ABD: always be digitalizing – other expenses fluctuated across the different banks. For example, NBC, RBS, and TD maintained or reduced their premises expenses, while BMO, BNS, and CIBC saw those costs rise in FY18.

Meanwhile, cost to income ratios improved for the third year in a row, decreasing to 54.3% in FY18 from 55.3% in the previous year. “Most of the Big Six Canadian banks have undertaken large-scale cost management programs in recent years, and the overall reduction in cost to income ratio in an environment where revenue growth has slowed can be to some extent attributed to the continuation of such efforts,” PwC explained.

Benefits from restructuring has helped manage expense growth

Aggregate return on equity (RoE) increased by 0.2% to 15.8% in FY18, driven by stronger income figures. The gains were partially offset by increased provisions for credit losses, operating expenses, income taxes, and common equity.

Return on assets increased from 0.86% in FY17 to 0.87% in FY18, while return on risk-weighted assets jumped 0.1% to 2.4%.

According to the report, Canadian banks have increased equity by $97.8 billion since FY14 – at a compounded growth rate of 9.5%; net income increased at a compounded rate of 8.1% in the same time period.

For Canadian banks, growth of loans and deposits slows down in 2018

PwC’s report shows that the Big Six have continued to grow their loans and deposits at an equal but slower pace. Loan-to-deposit ratio stayed fixed at 80%, with $200 billion added to both loans and deposits. The FY18 loan balance increase (7.3%) was higher than FY17 (5.6%), but well short of the 9.8% growth in FY15. FY18 deposit balance grew 6.5%, but was also short of the 12.2% year-over-year growth seen in FY15.

The Big Six also increased their balance sheet utilization as customer deposits – as a proportion of total liabilities – grew by 0.4% to reach 68.4% in FY18.