Canada's top six lenders have ample liquidity and manageable credit risks which will help them to emerge largely unscathed from the crisis of confidence that has rocked the global banks over the last two weeks, analysts said on Monday.
The collapse of two U.S. regional banks- the Silicon Valley Bank (SIVBV.UL) and Signature Bank (SBNY.O) this month --and the Swiss government-brokered deal for UBS (UBSG.S) to buy Credit Suisse (CSGN.S) has raised concerns about the health of global banking sector.
"The U.S. contagion is unlikely to spill over to Canadian banks as the issues in U.S. are unique and specific to certain business models or lending activities," said James Shanahan, banking analyst with Edward Jones to Reuters.
Still, the six big banks have collectively lost 9% or C$57 billion ($41.7 billion) in market capitalization in the past two weeks, according to DBRS Morningstar. In comparison, the U.S. bank index (.SPXBK) has fallen 21.5% in last two weeks.
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Canada's Finance Minister Chrystia Freeland also defended the country's financial institutions on Monday saying they have capital to withstand "periods of turbulence" and prudent risk management.
Freeland said the government is monitoring the situation closely and Canadians should be confident that at a time of global uncertainty, there is no better place to be than Canada.
On Monday, the Canada's financial sub-index (.SPTTFS) rose 0.7%.
Central Banks across the world, including the Bank of Canada have set up daily dollar taps to bolster the cash flow to banks dealing with liquidity issues.
Canadian banks generally have lower exposure to fixed-income securities diversified and stable funding, capital buffers that "should enable these banks to navigate current market turbulence," said Carl De Souza senior vice-president, DBRS Morningstar.
Canadian Banks have not experienced deposit outflows in March and, as such, "we do not see imminent signs that deposit trends will force the premature sale of bond holdings."
The positive assurances from market analysts and the government comes after more than a week of market fears and uncertainty. In Canada, the financial regulator took permanent control of the assets of Silicon Valley Bank's Canadian branch, meanwhile financiers told Reuters that Canada's technology start-ups would find it more difficult to get funding.
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Canadian banks emerged stronger from the 2008 global financial crisis due to prudent regulations and since built a reputation for financial stability. The six big banks - including Royal Bank of Canada (RY.TO) Toronto Dominion Bank (TD.TO), and Bank of Montreal (BMO.TO) - account for about 80% of Canada's banking assets and have avoided scandals or failures that have plagued banks their European and U.S. peers.
The Canadian banks have kept their focus on domestic lending and majority of their earnings come from serving local clients. But in recent years, Royal Bank, BMO, TD Bank and CIBC (CM.TO) have expanded into the United States by buying regional lenders to benefit from strong growth in second-tier U.S. cities.
That strategy is now under scrutiny since the current bank crisis in the United States was triggered by problems at the regional lenders.
TD Bank, for instance, launched a $13.4 billion bid for Memphis-based First Horizon Corp (FHN.N), more a year ago that is still awaiting regulatory approval. However, last week the regional bank's stock was hit after the SVB collapse.
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By Monday late morning, TD shares rose 0.2% and First Horizon was up 3% at $15.28 -- still 38% lower than TD's offer price.
"The market is thinking that TD is in a good position to re-negotiate the deal considering First Horizon is in a tough spot now," Shanahan said.
TD and First Horizon have pushed the closing date of the acquisition to end of May, with an potential for an extension.
TD was unavailable for an immediate comment.
($1 = 1.3662 Canadian dollars)
