The banking sector is witnessing many changes coming from technology, changing consumer preferences, and the economy as we enter a new decade. Banks must adapt to this new environment if they are to remain relevant. Here are a few of the things that banks are paying attention to and preparing for in the coming decade.
Bank executives in Canada are forecasting a strong increase in direct banking for the foreseeable future. These are online only and mobile banking services that do not require a brick and mortar or branch location. Direct banking is especially popular with the millennial generation that values the mobility and convenience of being able to bank on a phone or web without the need of having to stop by at a branch.
Another important topic for Canadian bankers is the housing market and mortgage industry. Bankers and the country’s top finance officials are keeping a close eye on the housing supply and the mortgage stress test. Both government officials and finance professionals are hoping that the housing market becomes more dynamic and better able to withstand greater amounts of stress in the future.
TD Bank is changing the role of some of its existing employees. CEO Bharat Masrani says that TD is working to transition current financial service representatives to a role more like a financial planner. TD is also planning to have hundreds of its new financial planners target new consumers in markets in the United States.
Most bank executives also see a cooling off of the global economy, at least for the foreseeable future. A Bank of Montreal executive says that a slowdown in the US economy could mean double-digit growth in commercial lending could grind to a halt in the USA. Other Canadian banks, meanwhile, are looking to expand their international footprint. Scotiabank is looking to expand its foothold abroad in places where it already has a presence such as Latin America.
Another major concern of the major banks in Canada for the future is that they have taken on a substantial amount of non-investment grade loans. These loans make up almost 50% of the total loans given out by the biggest Canadian banks. Non-investment grade loans are riskier than investment-grade loans, but they offer a higher yield. A large amount of non-investment grade loans is mostly a result of low-interest rates and a favorable credit market for borrowers.