• Chris Ford and John Ingold
  • Published: 04 June 2020

After releasing earnings reports for Q2, the ‘Big 5’ Canadian banks reported massive earnings reductions. Below we provide a snapshot of the key facts, cover some macro trends, and discuss what these banks should do next.

Key facts:

  • Net income across the banks was down by around 50 percent except for CIBC, who lead the drop at 71 percent.  Earnings declines were driven by massive increases in provisions for credit losses - mostly on performing loans, some of which may migrate to non-performing -  which won’t impact future earnings. However, as Brian Porter of Scotiabank said: “we will be picking up eggshells for some time to come.”
  • Banks, government and regulators are working together to support the economy – CIBC was the first out with programs to assist its customers.
  • From a workforce perspective, about 85 percent of non-branch staff are working remotely, with between 60-80 percent of branches being open, with enhanced safety measures and reduced hours.
  • Most institutions are indicating that there will be no “return to the office” before September at the earliest.
  • Customers have benefited from bank and government support, with 2.4 million payment deferrals processed, representing $248 billion in lending. Scotiabank led the way on processing Canada Emergency Response Benefit (CERB) with 600,000 customers assisted
  • Communities have benefited from banks continuing to employ staff, hire students, and increase benefits and pay in some areas. Additionally, they’ve donated their time, facilities and financial resources, an average of $13 million, with TD leading the group at $25 million, and BMO donating their learning center for frontline healthcare workers.
  • Banks generally agreed that future earnings might have more volatility, well into 2021.  Banks are resilient and have adequate liquidity and capital. Many conducted various stress testing scenarios and reviews of their at-risk credit books, RBC led the way with enhanced disclosures.
  • When you adjust for increased loss provisions, bank results were unexpectedly strong for the quarter. For example, TD delivered 3 percent year-on-year revenue growth and simultaneously reduced costs by 2 percent for what might have been a record quarter under normal conditions. 

Digital adoption:

With government-mandated stay-at-home orders in place in most geographies the ‘Big 5’ banks operate in, digital adoption rates soared:

  • RBC and Scotiabank reported adoption increases of 19 percent.
  • Active mobile users were up to with CIBC leading with a 26 percent increase.
  • Self-serve volumes increased by approximately 5 percent.
  • Banks are managing branch hours and availability dynamically and based on changing coronavirus conditions and demand by location.

Customer challenges:

While customers had patience early on, and the pace of deferral requests is dropping. There are some lessons for the banks, even when thinking about next year and where to invest.

Customers were frustrated with wait times, dropped calls, and inflexible financial terms. These complaints sound like Canada’s telecom industry, don’t they?

Here’s what banks should do:

  • Invest in assisted channels, including interactive voice response and AI-based chat support
  • Front-office branch staff were mostly rendered useless during branch closures. Numerous technology strategies could have enabled continued connectivity with clients and integrated support for advice with heavily overloaded contact centers.
  • Invest in the smart digitization of processes, figure out the right process to use as much self serve as possible, and digitize front to back.
  • Think like the customer – invest in advice-based services, develop flexible new product features, educate customers on how to build a real emergency fund, and examine what you could do better next time. Also, strategically shift marketing and front-office incentives to ensure the focus is on being genuinely customer-centric versus product-centric.
  • Think about your workforce, how to cross-train, what physical space is needed, actively ramp up work from anywhere programs, enhance benefits to address mental and physical health challenges arising from these events.
  • Continue to work actively with the government; Canada needs a plan that appropriately balances risks and rewards regarding reopening the economy. Banks can play the leading role

Capco Canada is proud to be the largest consulting firm focused only on financial services.  Our clients trust us to help them solve difficult challenges, and we have been helping banks in Canada adapt to these changing circumstances.  We can help!