Canada's five largest banks all announced dividendincreases this week as they continue to show they're among the soundest in theworld amid trouble elsewhere. Bank executives credited stronger regulation inCanada.
Royal Bank, Canada's largest, reported its highest quarterlyprofit ever on Thursday while TD Bank, the second biggest bank, and CIBC, thefifth, also reported better than expected earnings.
Earlier this week, Scotiabank and the Bank of Montreal alsoreported improved earnings and dividend increases sending a strong signal offinancial health in Canada amid bank troubles in Europe.
"The Canadian banks are continuing to generate veryhigh levels of profitability and as a result the capital levels and dividendscontinue to grow which is quite different from what you have elsewhere,"Royal Bank of Canada Chief Executive Gord Nixon said in a telephone interviewwith The Associated Press. "Good regulation has had a lot to do with it.Banks went into this crisis with much higher capital levels and much lowerleverage than the European and the American banks and as a result we were ableto weather the storm in a much different fashion than our globalcompetitors."
Crag Alexander, chief economist at TD Bank, notes the banksare increasing their payouts at the same time regulators are telling them tohold more capital because of new international requirements for holdingcushions against risk. Canada is one of few countries where the so-called BaselIII capital rules for banks have been fully implemented.
"Not only are the Canadian banks on track to meet thedemands of the new regulatory system but they also have enough cash to raisetheir dividends," Alexander said. "What this shows is the robustnessof the Canadian financial system."
Scotiabank also showed its strength this week when itannounced it agreed to buy ING Bank of Canada from its Dutch parent for $3.1billion. ING Groep NV, one of Europe's largest financial institutions, has saidit needed to raise capital to weather the European debt crisis.
Canada's banks are stable because, in part, they're more regulated.In Canada's concentrated banking system, five major banks dominate the marketand regulators know each of the top bank executives personally. As the U.S. andEurope loosened regulations on their financial industries over the last 20years, Canada refused to do so. The banks were not as leveraged as their U.S.or European peers.
There was no mortgage meltdown or subprime crisis in Canada.Banks generally don't package mortgages and sell them to the private market, sothey need to be sure their borrowers can pay back the loans. A large portion ofthe loans are also government insured with the insurance bought by thecustomer.
Colleen Johnston, chief financial officer for TD Bank, saidthere are concerns about an overheated housing market fueled by historic lowinterest rates, but noted the Canadian government has tightened mortgage rulesfour times since 2008 in an effort to cool it down. Johnston said TD expectsthere to be a gradual correction in home prices over the next two years orthree years, but said that would be healthy for home buyers and the banks.
Royal Bank's earnings grew to $2.24 billion Canadian(US$2.25 billion), or about CA$1.31 (US$1.32) per share in the third quarter,due mainly to record earnings in the banks Canadian operations. Analysts hadexpected earnings per share of $1.18 Canadian (US$1.19).
Royal Bank said its quarterly dividend will increase bythree cents to 60 cents per share, the bank's third dividend increase in thepast five quarters. TD Bank said it will increase its dividend five cents to 77cents as it reported a record quarter in Canadian personal and commercialbanking. TD said the Canadian business grew 12 percent compared to 3 percentgrowth in their U.S. personal and commercial banking business.