THE INHERENT strength of the Canadian financial system and its tight system of regulation have left the country’s banks in pole position to take advantage of international acquisition and growth opportunities.
Canada is the only country in the Group of Seven (G7) industrialised nations that has not been forced to prop up its banks with guarantees, government investments or the purchases of toxic assets.
Canada’s tradition for fiscal conservatism has set strict capital requirements on the banks and prevented a credit bubble in the country’s housing and property market, thereby keeping the financial system in check.
In the boom years Canadian financial institutions were considered boring for not being more aggressive and profit hungry, but this conservatism has stood to the country’s banks.
“It has turned out that boring is good and an excellent attribute of a financial system,” said Canada’s finance minister Jim Flaherty in a briefing to The Irish Times and nine other European media in June.
Four of the five biggest banks have remained profitable through the global financial crisis, with only Royal Bank of Canada (RBC), the country’s largest bank, posting a quarterly loss this year.
The country’s fifth largest bank, Canadian Imperial Bank of Commerce (CIBC), AIB’s suitor, has taken larger write-own on US-related credit investments than its four larger rivals.
The bank also has a more chequered financial history, having encountered difficulties on previous investments in private equity, US retail expansion, property lending and commercial loans under earlier regimes.
Unsurprisingly, CIBC’s interest in AIB yesterday attracted scepticism at home where mooted high-risk investments – buying a minority stake in an Irish bank is regarded as such – are taken seriously not just by the purchasing bank but by the Canadian government and banking regulator.
For the most part, Canadian banks’ avoidance of heavy leveraging during the boom years leaves them in a position of strength to take advantage of opportunities overseas.
However, banks are for the most part eyeing acquisitions south of the border in the US.
Gordon Nixon, chief executive of RBC, told The Irish Times in June there was no question but that the conservative nature of Canada’s banks had been a source of strength, creating opportunities.
