Banks focus on staff cuts, provisions for bad loans in Q4

Fewer employees and more money set aside for bad loans were two of the dominant themes of Canadian bank earnings this past quarter as they prepared for whatever may come next year.

Fourth-quarter results that wrapped on Friday showed the country’s banks were preparing for a potentially tougher road ahead, but also that fears around a recession look to be fading.

The word hardly came up on earnings calls, with more talk instead of simply slower growth as the central bank rate hikes appear to have peaked and consumers on the whole are so far managing through higher payments.

“The economy has been holding up very well. You’re seeing positive revisions to economic forecasts, and I think these will play out to our benefit as we go into ’24,” said BMO chief risk officer Piyush Agrawal on an earnings call Friday.

While there is still significant concern of borrower strain ahead as waves of mortgage renewals will be coming at higher rates, he noted that consumer balances remain elevated to help see them through the jump in payments.

Instead of a significant shrinking of the economy, banks are expecting — and already seeing — slower growth. They have been cutting back on expenses, most notably around staffing.

TD Bank announced in the quarter it was cutting about 3% of staff, or around 3,100 positions, while Scotiabank and RBC have also been working through similar reductions.

Other banks have been steadily reducing staffing levels, in part by not replacing people who leave their roles, across the year in anticipation of the slowdown.

CIBC reported its head count went down by 5%, or about 2,400 positions, over the year, BMO pulled back by close to 1,600 positions from the third to fourth quarters, while National Bank reported Friday that it had reduced its numbers by 1.6% over the year.

“We continue to prudently manage head count,” said National Bank chief financial officer Marie Chantal Gingras on an earnings call Friday.

“We remain focused on controlling costs, as well as on balancing business growth and investment.”

Along with a focus on expenses, all banks also set aside more provisions for bad loans during the three-month period.

Scotiabank surprised the most with a more than doubling of provisions to nearly $1.26 billion. Others had more modest builds, with totals at TD Bank of $878 million, RBC at $720 million, BMO at $446 million, CIBC at $541 million and National Bank at $115 million.

“In keeping with our commitment to ensure the bank is well positioned to manage through periods of slow growth and uncertain macroeconomic times, we have significantly increased the allowances for credit losses,” said chief executive Scott Thomson on Tuesday.

Banks emphasized that the money set aside will help them manage through the uncertain times ahead.

“Our defensive positioning and the earnings power of our diversified business mix provide us with resilience and flexibility in a less constructive environment,” said National Bank chief executive Laurent Ferreira.

Most banks also raised their dividend, with the notable exception of Scotiabank.

Charges related to expense reductions and the provisions put some pressure on bank earnings, but several reported higher earnings than last year.

And while most banks emphasized the challenging environment, executives did also leave room open for optimism.

“If things go slow, we’ll manage accordingly,” said CIBC chief executive Victor Dodig.

“If things turn better, and there’s a very good chance that we have this ‘soft landing,’ we will capitalize on that as well.”