By Nichola Saminather
TORONTO (Reuters) – The economic impact of the coronavirus pandemic on Canada will be broader and more challenging than the 2008-09 financial crisis, with recovery likely to take longer than expected, the chief executive of the country’s two major banks said on Wednesday.
“This is far worse than the financial crisis … which is very mild for Canada,” Royal Bank of Canada
“We are facing economic shocks and contagion like we have never seen,” he said, adding that significant “fiscal stimulus” would help ease the impact.
Canada has announced a massive stimulus package to support the economy during the health crisis, and the central bank has cut key interest rates to a decade low.
McKay said other steps were being considered, “elements where we see holes,” including the consumer credit program, and programs for banks to help companies separate from the current government fiscal package.
While government assistance measures may seem to take longer than ideal, they have united, “very, very fast,” given the nature of the unprecedented crisis, Victor Dodig, CEO of the Canadian Imperial Bank of Commerce
Both CEOs said they expect a slow recovery, as consumers and businesses make permanent changes to the way they operate, driven by concerns about future surges in the case of COVID-19 and the effects of recession on consumers and businesses.
“We have to support businesses and consumers a little longer than we planned, even a month ago,” McKay said.
Both said it was predicted that a quick recovery in the form of a V or U was impossible.
“When things start to look more normal, people will feel their wealth diminishing,” Dodig said. “People will be careful overall … which will affect the economy.”
Both banks say they have enough capital and liquidity to deal with the crisis, and currently have no plans to change their dividend policy.
RBC has a common tier 1 (CET1) ratio, a measure of bank capital strength, of 12% of risk-weighted assets in the first quarter, when the impact of the pandemic was still limited. CIBC reaches 11.3%.
The minimum CET1 requirement for major Canadian banks is 9%, reduced by banking regulators last month to increase lending capacity as coronvirus outbreaks increase.
RBC has processed 250,000 deferred payments for mortgages and other loans for troubled customers, while CIBC has received 250,000 deferral requests.
RBC shares closed up 2% in Toronto, while CIBC shares rose 2.3% in line with the Toronto stock benchmark <.GSPTSE>.
($ 1 = 1.4045 Canadian dollars)
(Reporting by Nichola Saminather; Editing by Denny Thomas, Chizu Nomiyama, Bill Berkrot and Steve Orlofsky)
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