Justin Trudeau saved bank profits

Justin Trudeau saved bank profits

Due to the economic crisis resulting from the health crisis triggered by the COVID-19 pandemic, our major Canadian banks have been forced to significantly increase their provisions for credit losses.

For the fiscal year ended October 31, the six major banks reported total provisions for losses of around $ 23.8 billion, compared to “only” $ 8.6 billion for the previous fiscal year.

Provisions for losses thus exploded by $ 15.2 billion, or 177%. This is unheard of. On its face, this increase demonstrates how hard COVID-19 has hit Canadians and Canadian businesses. How many individuals and businesses find themselves in financial trouble because of the paralysis of several sectors of the Canadian economy.

Now imagine how much the provisions for bank losses could have been if the government of Justin Trudeau had not put in place its vigorous and expensive government response plan against COVID-19 last spring. An intervention plan, it is important to remember, which crossed the bar of 225 billion dollars, including 109 billion in financial support for individuals and 81 billion in support for businesses.

DISASTER AVOIDED

Had it not been for this federal COVID-19 survival plan, the bank’s balance sheet would have been simply catastrophic. We will agree that the various emergency benefits offered to victims of the coronavirus pandemic, wage subsidies and other financial assistance measures for businesses … have made it possible to avoid economic disaster.

Much to the relief of the major Canadian banks and their shareholders.

At the height of the stock market crisis from the end of February to March 23, the securities of the major Canadian banks had momentarily fallen by 30 to 50%. Investors anticipated a collapse in bank profits … because of the impact of the health crisis on people’s personal finances and the financial health of businesses.

Finally, the health crisis was less disastrous than expected on the profitability of banks and this explains why bank securities have recovered on the stock market, so that prices returned to the level before the pandemic.

PLANTUROUS BENEFITS

As proof, the six major Canadian banks reported net profits of $ 41 billion for the 2020 fiscal year ended October 31. That’s just $ 5 billion less than in the previous fiscal year 2019, which closed with record profits of $ 46 billion.

Admittedly, an 11% drop in bank profits following one of the worst financial crises in Canadian history is really little given the scale of the slump.

I remind you that last April, the general shutdown of economic activity linked to COVID-19 directly affected 5.5 million Canadian workers, including 3 million people who lost their jobs and 2.5 million of people who have remained employed while taking time off work due to COVID-19.

THE WORST IS OVER

With the arrival of the COVID-19 vaccine, it is obvious that the economic situation will improve over the next few semesters.

Provisions for bank credit losses are expected to decline in fiscal 2021. Analysts expect provision for losses of $ 16.6 billion, down 30% from 2020.

This is certainly encouraging … But we are still talking about a level of provisions for losses in 2021 which remains twice as high as in 2019, a normal year.

BUT

Why does the level of bank credit losses remain high in 2021? Three reasons.

One, we are hit by a second wave of COVID-19 which has again forced the closure of several economic sectors. Two, the period of deferral of bank payments related to mortgages, personal loans and credit cards … is over. Three, the Trudeau government’s generous financial aid programs are coming to an end. Four, the pace of generalized vaccination of the population against COVID-19 is relatively slow since it extends over the whole of 2021 or almost.

That said, let’s not worry about our big Canadian banks. They are recognized worldwide for their financial strength.

Justin Trudeau saved bank profits

Justin Trudeau saved bank profits

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