Canadian Bank Lending: More Good Signs for the Economy

The CVCA was working the halls of power in Ottawa Friday on behalf of Canada’s Innovation Economy, and we had the pleasure of meeting Bank of Canada Governor Mark Carney and his Governing Council. Let me tell you, our nation’s monetary policy appears to be in excellent hands with this team.

Speaking of the Bank, they just released their monthly data regarding the quantum of outstanding Canadian commercial bank loans. The news was good. The total figure was remarkably stable between September and October, dropping merely $60 million for the month.

The category is “Business loans to Canadian residents for business purposes”, and the data is from the Bank of Canada:

December: $191.563 billion
January: $185.679 billion
February: $183.759 billion
March: $184.089 billion
April: $181.811 billion
May: $180.191 billion
June: $177.865 billion
July: $176.164 billion
August: $175.318 billion
September: $172.652 billion
October: $172.592 billion

Commercial and corporate lending by chartered banks to Canadian-based businesses is down $18.971 billion year-to-date, or about 10% of what was outstanding as of December 2008. Curiously, this month’s report carries revised monthly figures going back to 2007. What’s there to revise?

All-in-all, this should represent another good sign about the state of the economy.

Comments

[bob adamson]

Mr. McQueen is right to note that the Canadian economy has, by comparison with most of the economies of the other G20, held up quite well over the past two years. Arguably, this is attributable to the strong fiscal state of the Federal and Provincial Governments and Canada’s sound monetary state going into the recession, the soundness of the domestic banks and the banking system, relative stability in the domestic residential and commercial real estate markets and the recovery in commodity prices in 2009.

The fact remains, however, that about 30% of Canadian GNP is generated through international trade, particularly trade with the US. This should mean that sustained Canadian recovery from the recession will only occur if the global and US economies recover. Historically, global recessions of longer duration strike Canada harder than elsewhere during their later stages because global demand for Canadian exports lags until after growth has returned in Canada’s trading partners. Time will tell whether the global recovery will begin in earnest soon or, if the recovery is slow, if this historic pattern for Canada will be altered this time.

Checking the chart entitled “Business loans to Canadian residents for business purposes” in Mr. McQueen’s article, you will notice that, while the volume of business loans has held up fairly well, there has been a steady if modest downward trend over the last 12

2009 Nov 29 03:55 AM

[dual cit]

You Canadian folks love looking on the rear view mirror. Try to extrapolate from the numbers that tell a far more disconcerting story. As Bob says above, the trade account deficit has hit historic levels this week. Consumer debt is at all time highs as a percentage of incomes and median home prices far exceed those in the U.S. and yet median incomes are far less.

It is seriously doubtful that none of this can improve with the Canadian dollar at its lofty level. And if that corrects it will be because oil prices begin to fade from their unwarranted level in which case the tar sands become less profitable if at all increasingg deficit spending. Then of course the long term view is that the demand for oil begins to fade with the advent of alternative energy.

Canadian banks my have attractive balance sheets now, but that is making the assumption that the asset side is worth it.

2009 Nov 29 10:07 AM

[Sleddawg63]

Canada has not been hit as hard (so far) by this recession. Job losses are somewhat confined to direct-to-USA jobs, especially in places like Windsor and Oshawa who rely heavily on the Big Three.

Canada's condition is fundamentally different. Greed, yes I said greed, didn't devour the housing market here. $500K homes for the magical amount of $1M just was not the trend. Secondly, Canadian banks are under the weight of regulation unlike the American banks. Cash reserves buffer against defaults. For once regulations served a purpose in this country.

Certainly not out of the woods. The economy is commodity based...always a joy ride. The weak US dollar is a concern.

2009 Nov 30 08:04 AM