Canadian banks have amassed their biggest war chest in five years — and they're ready to use it. The country's six largest lenders are approaching their strongest capital position since 2013, leaving them with enough resources to pursue acquisitions, buy back shares or build from within. That has the chiefs of Canada's big banks weighing options. "It's great to have this capital flexibility," Royal Bank of Canada Chief Executive Officer David McKay told reporters last week after the country's largest lender held its annual meeting in Toronto. "We'll continue to return capital, we'll continue to grow and we have flexibility with our strong capital ratios to make an acquisition if necessary." The average of the banks' common equity Tier 1 Capital ratio, a measure of financial strength, stands at 11 percent and would be 11.4 percent after adjusting for capital requirement revisions made this year by Canada's bank regulator. That's up from 9 percent in 2013 and the strongest since Canada adopted the latest global standards put in place since the financial crisis in 2008. Canada's Office of the Superintendent of Financial Institutions requires a minimum 8 percent CET1 ratio for the six large banks. The ratio is calculated by dividing a bank's highest quality capital by its risk-weighted assets. Canadian lenders have an advantage over the largest U.S. banks, which boast higher regulatory capital strength but also face additional constraints from U.S. regulators that crimp their flexibility in using capital.
Credit cards
The banks are estimated to have C$14 billion ($11 billion) of excess capital, with Toronto-Dominion Bank holding the biggest coffer at C$5.8 billion, according to Sumit Malhotra, a bank analyst at Scotia Capital. Bank of Montreal has C$3 billion followed by Royal Bank at C$2.1 billion, while Bank of Nova Scotia and Canadian Imperial Bank of Commerce each have C$1 billion of excess capital, he said.- Canadian Banks Have Reason to Keep Roaming in U.S.
- Canadian banks want bigger piece of U.S. wealth management