This report examines the short-and medium-term economic and profitability outlook for Canada’s banking industry.
High inflation and rising interest rates will weigh on output in the banking sector over the next two years. Higher interest rates, especially, will have a negative impact on total economic growth and thus on the securities segment of the industry.
Rising interest rates will also be a source of concern regarding loan demands, particularly for mortgages. This will weaken output growth in the retail banking segment of the industry.
On the positive side for the industry, higher inflation will likely deplete some household savings, notably for lower-income households. This could increase demand for credit products, a boost to output in the non-depository banking segment.
We expect automation to continue to drive labour dynamics in the industry. The industry will move away from servicing customers at the branch toward serving them online, which will boost productivity and weigh on total employment growth.
In all, we forecast total output in the banking sector to grow by 2.7 per cent this year and 1.1 per cent in 2023.
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