Bank Leaders Say Coronavirus’ Economic Toll Will Be Worse Than Expected

Canada’s leading banks are forecasting that the coronavirus pandemic’s economic impact will be worse than the 2008-09 financial crisis, and that the recovery will take longer than expected.

Canada has announced a massive stimulus package to support the economy during the health crisis, and the central bank has cut the key interest rates to a record low.

However, Royal Bank of Canada (TSX:RY) Chief Executive Officer David McKay said that, despite the federal measures, he expects a slow recovery, as consumers and businesses make permanent changes to the ways they operate, fueled by wariness about future spikes in infections and the effect of a prolonged recession on consumers and businesses.

Victor Dodig, Chief Executive Officer of Canadian Imperial Bank of Commerce (TSX:CM) said he agrees with the sentiments expressed by McKay. Both RBC and CIBC said they each have sufficient capital and liquidity to weather the crisis, and currently have no plans to change their dividend policies.

RBC had a common equity tier 1 (CET1) ratio, the measure of a bank’s capital strength, of 12% of risk-weighted assets in the first quarter, when the pandemic’s impact was still limited. CIBC’s stood at 11.3%.

The minimum CET1 requirement for major Canadian banks is 9%, reduced by the banking regulator last month to increase lending capacity as the coronavirus outbreak spread. RBC has processed 250,000 payment deferrals for mortgages and other loans for struggling customers, while CIBC has received about 200,000 similar deferral requests.