While Canadian banks continue to be the envy of the world, they’ll face the challenges of regulatory demands and a fragile global economy, according to a PwC report released Monday.
PwC’s annual review of the banking industry found that the country’s big six banks continued to show strong earnings over the past year. It added that capital ratios of 12% to 14.7% position banks well for upcoming regulatory changes.
Diane Kazarian, PwC’s Canadian financial services leader, said that the top three issues Canadian banks will face in 2012 are regulatory uncertainty, macroeconomic conditions and pressure to grow.
According to PwC, upcoming global regulatory changes include wholesale changes to the regulatory system that are being negotiated in the U.S. and Europe. These changes will not only affect Canadian banking operations in those countries, but also the way Canadian banks function at home, the report said.
John MacKinlay, PwC’s financial services consulting leader, added that in 2012, limited domestic acquisition and growth opportunities will push Canadian banks to look abroad for growth opportunities.
“The challenge is that regulatory uncertainty makes it more difficult to form an opinion on the predictability of earnings, capital consumption and hence values,” he said.
“Notwithstanding these challenges, the need for many global banking institutions to recapitalize and release capital consumed by certain businesses means that there will be interesting opportunities in the market.”
He added: “As this global restructuring will take years to unfold, the Canadian banks have the luxury of being able to sit on the sidelines and be very selective about their targets.
