Canada’s Big Six banks faced headwinds in their home market this quarter, but the country’s regional banks, particularly Canadian Western Bank , are charging ahead.
At home, the biggest banks faced slowdowns because of low net interest margins, meaning they earn less money per dollar lent out, and because of lower capital markets revenues. CWB skirted around both problems, and Laurentian Bank evaded one of two.
In turn, both banks hiked their dividends by 8 per cent. CWB’s is now 14 cents per quarter, representing a yield of 1.8 per cent and Laurentian’s is now 42 cents per quarter, representing a yield of about 3.3 per cent.
The strength was expected. In Canadian Western Bank’s case, commercial loans dominate its balance sheet and the bank is a big lender to the oil patch, a region that has been doing extremely well of late. As for capital markets, both banks don’t focus on this segment so they weren’t affected by the lower advisory fees and trading revenues that plagued the other banks.
However, lower net interest margins were practically inevitable for Laurentian because the Quebec-based bank has a big retail profile. In the second quarter of 2010, the bank’s net interest margin was 2.10 per cent. This year it is 2.01 per cent. CWB was luckier, it’s margin only fell from 1 basis point from last quarter, but is actually up over a year earlier.
“Reductions in loan demand in certain markets and heightened competitive pressure on interest margins since the beginning of the year have meant an increased focus on margins over volumes,” Réjean Robitaille, Laurentian’s chief executive officer, noted in a release.
In the retail sector, Laurentian has been targeting young families with mortgages and RRSP offerings. And the bank said it has been paying off. On the small commercial side, owner daycares and pharmacies are the target businesses.
Like the Big Six, both CWB and Laurentian reported lower provisions for loan losses.