This is the second story in a series on Canada’s fast-growing financial services industry, which helps build Canada’s export strength and global competitiveness. Our first story provided a high-level overview on the industry, and an upcoming story will cover the challenges and opportunities for Canadian companies.
Compared to other nations, Canada’s banking system has received international praise for how it fared during the global financial crisis. While affected, Canadian banks weren’t crippled and none failed as their foreign counterparts did in countries such as the United States and parts of Europe. As a result, Canada’s banking system has consistently ranked among the world’s most sound by the World Economic Forum.
“The fact that Canada came through the financial crisis so well was a combination of strong bank management, a good regulation system, and strong policy from the Bank of Canada,” says James Darroch, associate professor of strategic management and policy, and director of the financial services program at York University’s Schulich School of Business.
“There is an expertise there that can be exported to the financial services via consulting firms or via acquisitions,” Darroch says. “Our expertise is really running very sound and safe institutions. I think that’s a valuable thing around the world.”
According to the Canadian Bankers Association, about 29 per cent of net income from Canada’s big six banks comes from foreign countries. Their international assets are valued at more than $1.6 trillion. The top six banks have more than 3,700 branches outside of Canada, with a presence in more than 65 countries.
Some banks have moved faster and further into international markets than others. Scotiabank is considered among the most international of Canada’s big six banks, with operations in Central and South America, the Caribbean, the U.S., Europe, and Asia.
RBC, the world’s 20th largest bank globally, based on market capitalization, has operations in 38 countries including almost every state in the U.S., the Caribbean, and a significant presence in select markets such as London, England, and the Channel Islands. BMO, meantime, does business across the U.S. as well as Europe, Asia (including a major presence in China) and the Middle East, while TD has a major presence in the U.S. and U.K. CIBC has international operations in the U.S., the Caribbean, Asia and Europe.
For its part Export Development Canada – the nation’s export credit agency – continues to expand its global footprint and influence. Currently with 19 international representations around the world, EDC is looking to expand further afield in 2016 with new offices in Jakarta and London.
In March 2016, EDC was named “Best Global Export Credit Agency” by UK-based Trade Finance, a market-leading resource for finance news and analytics. Among its highlights Trade Finance cited EDC’s participation in a $1.8 billion U.S. corporate facility for Dubal of Emirates Global Aluminum (EGA) and EDC’s contribution to a $105 million U.S. line of credit with Afrexim Bank for Egypt’s Egyptian Electricity Holding Company. EDC works with private- and public-sector institutions to foster capacity for Canadian companies to engage in trade and investment. In instances like those recognized by Trade Finance, EDC extends loans to offshore firms to help encourage them to choose to work with qualified Canadian suppliers. For both transactions, Trade Finance recognized the quality, innovation, and market influence of EDC’s deal making, as well as the diversity of EDC’s product offering.
Banks forced to look outside of Canada
It was after the federal government turned down merger attempts by Canada’s big banks in the 1990s that they began to aggressively look outside of the country to grow their business.
After that, banks began to develop their own growth strategies, says Ron Stokes, financial services transactions leader, EY. He says those strategies have also evolved and changed over time.
“Asset classes or countries may no longer be on point or strategy,” Stokes says.
For instance, a growing area for banks today is the private wealth business amid a multi-trillion dollar transfer of wealth now underway. At least $16 trillion U.S. of ultra-high net worth wealth will be passed down to the next generation over the next 30 years, according to the Wealth-X and NFP Family Wealth Transfers Report, which describes the shift as the “largest wealth transfer in history.”
Stokes says banks are driven to not only find new customers, but also to service existing ones as their personal or business needs become more global. He cites an oil and gas company doing business in the U.S. or Europe, as just one example.
“The Canadian banking sector is very competitive,” says Stokes. “Globally, they have an opportunity to take the experience in Canada and offer a better experience in different markets … It allows the Canadian competency to be exported to the U.S. and other places.”
Opportunities in financial technology
The growth of financial technology (fintech) is a newer area of competition for Canadian banks. While some see it as a threat, others also view it as an opportunity for traditional banks to innovate and expand lines of business. Canadian banks are now on firmly on board the fintech train.
Most are investing billions in digital strategies, as well as partnering with some fintechs to help broaden their knowledge and appeal to existing and potential consumers. For example, CIBC has partnered with the MaRS Discovery District to build a digital hub and drive partnerships with fintech start-ups. BMO has partnered with DMZ at Ryerson University, another business incubator, to help find talent and technology in the fintech startup space. BMO was also the first Canadian bank to launch a robo-advisor service. Scotiabank has an internal fintech incubator called the Digital Factory, TD has an innovation lab in Waterloo and CIBC has created partnerships with existing fintech companies such as Payfirma.
These partnerships are good for the banks, as well as fintech players themselves who are eager to expand their operations outside of Canada.
