The head of Canada’s largest bank says uncertainty wrought by the Omicron variant is making it difficult to generate economic forecasts, as the country struggles with rising COVID-19 hospitalizations, employee absences and new lockdown measures. RBC chief executive Dave McKay made the comments on January 10 at the RBC Capital Markets Canadian Bank CEO Conference.

That uncertainty, McKay said, has made it more difficult to chart a course for the Canadian economy in 2022, though he stressed it wasn’t cause for alarm. “Not getting a forecast is no signal that we’re concerned at all, we’re just having trouble forecasting,” he said. “I think it’s going to reduce growth, probably from 4.5% to 1.5% in Q1 in Canada, but their growth should start to return in Q2. Therefore, we still see a four-plus GDP growth year in Canada.”

He added that RBC anticipates a delayed return to a normalized environment and that the bank had been taking a conservative approach with its reserves, despite “benign” credit markets. “We’re just being conservative. And again … there’s no half-life to those reserves as well and they don’t disappear,” he said. “So, from that perspective, when we feel we’re confident of the future, we will hopefully release those … it’s hard to predict. There’s no science or insight beyond just uncertainty.”

The head of the National Bank of Canada, Laurent Ferreira, also said his bank was taking a prudent approach to reserves given the Omicron uncertainty. Ferreira told viewers that over the past 18 months, the bank saw the opportunity to build up reserves more aggressively than its peers, particularly in its commercial portfolio.

“I think you should expect us to remain prudent still. Where we are, the pandemic’s not over,” Ferreira said, noting that it was too early to tell whether to expect reserve release later this year, or early in 2023.

Victor Dodig, chief executive officer of the Canadian Imperial Bank of Commerce, said he too thought it may take more time for consumer behaviour to normalize, though he was optimistic the recovery would pick back up. “This is something that we’ll get through in spite of the very challenging circumstances that exist in the healthcare system today,” Dodig said during the conference. “In the early going, you won’t see as much activity in the consumer side, but as the economy opens up, you can start to see that normalize.”

Dodig added that the companies CIBC banks with are in a strong position and are actively deploying capital as they look toward the re-opening. Inflation is also on Dodig’s radar, and he expects it to remain elevated throughout 2022, though not excessively so long term.

“Our view is that we’re going to see a heightened level of inflation as we move into 2022,” Dodig said. “The 2% inflation that we’ve seen in the pre-pandemic world is likely something of the past…. A slightly heightened level of inflation and heightened level of interest rates would be good for the banking sector, good for the economy, as money gets repriced to a more normalized level.”

Source: Financial Post