The chief executive of Canadian Imperial Bank of Commerce says banks are facing their “moment of truth” as they are thrust into a central role in keeping businesses and families afloat long enough to ride out a fast-moving public health emergency.
In an interview on Wednesday from his home office, Victor Dodig said banks are working closely with federal and provincial governments, central bankers and regulators to help craft programs that would prop up specific industries such as energy and airlines, and give small businesses relief from rent payments on commercial properties.
Banks are also playing a vital role during the new coronavirus pandemic by extending extra credit directly to consumers and businesses as stores and offices close and incomes and revenues dry up. CIBC has deferred “tens of thousands” of payments on mortgages, loans and credit lines, Mr. Dodig said, and the volume of new requests coming in is still “red-lining.” At the same time, larger business clients are drawing down credit lines and asking to increase credit limits, which CIBC is granting “where it’s warranted,” he said.
Whereas past economic crises have often been rooted in the workings of the financial system itself, COVID-19 presents a different kind of challenge, Mr. Dodig said. Emergency measures rolled out by banks and governments are an effort to “bridge ourselves to a period of normalcy again," he said, and are not the final answer to the dangers the disease poses. The top priority is still “solving the health-care problem,” Mr. Dodig said, adding what worries him most is whether Canadians have the ability and the collective will to curb its spread fast enough.
“This is our moment of truth as a bank,” he said. “Nobody’s ever faced anything like this. It’s a highly human story. So unlike the crises of the past, which were liquidity and funding and leverage-related, while leverage exists in the system, this is a human story that’s touching everybody."
CIBC is grappling with its own set of challenges. As the coronavirus spreads, the first order of business has been to co-ordinate more than 40,000 employees to keep them working to help clients, but also support staff as they cope with family demands. About 20,000 staff are working from home, but a similar number is still “on the front lines,” Mr. Dodig said. By closing 206 advice-based branches, the bank created what he called a “reserve squad” who can rotate into those jobs, easing the pressure on staff in branches and call centres, where CIBC is trying to uphold principles of social distancing.
“It’s not business as usual, for sure," Mr. Dodig said. “Each and every day gets to a steadier and steadier state, but it all depends on how the health-care problem evolves.”
Even the CEO is isolated: Mr. Dodig is working from his home in west-end Toronto, with his family, taking short walks in his backyard and riding a stationary bike in his basement to stay healthy. Mostly, he fields calls from bank staff, clients, governments and regulators to co-ordinate CIBC’s response. “I have spent more time on the phone on any particular day than at any time in my career,” he said.
There is collective agreement that Canada’s energy sector and airlines need more intervention from governments, “so I would expect to see that,” Mr. Dodig said. But the big issue emerging for small businesses – especially those that have had to close – is how they can get a break on paying rent on commercial properties.
Mr. Dodig has spoken to real estate investment trust (REIT) clients that have given small retailers relief. “That’s a situation that we’re highly attuned to, the government is as well, and you’ll see solutions emerging on that front,” he said.
Federal Finance Minister Bill Morneau said Wednesday that his government has been working with banks, “literally overnight, over the days" to create “the capacity for the banks to deliver on all size of businesses the kind of credit they’re going to need to get through a challenging time."
“The banks are working well together with us, but we don’t have anything final to report in terms of exactly the parameters of how we’re going to move forward,” he told reporters.
To help small businesses, the federal government has received proposals as dramatic as inducing banks to give small and medium-sized businesses zero or low-interest loans for up to six months, with those loans backstopped by government to reduce the risk to banks. Earlier this week, Germany’s government announced plans to cover up to 90 per cent of the risk for banks making low-interest commercial loans to struggling companies, with no limit on funds available.
Mr. Dodig stopped short of calling on government to guarantee bank loans to encourage more lending. But he said “everything” governments can do “to encourage banks to support industry, to support individual Canadians, to bridge us through to the next period of normalcy, is a good and constructive thing – done responsibly.”
The financial system “is resilient, we’re all well capitalized, and we’re all on to make sure we can bridge the next period,” he said.
He also urged clients who receive relief from banks and governments to spread those benefits more broadly, citing a client who said that after CIBC deferred his mortgage payments, it allowed him to pass that relief on to tenants in four rental apartments he owns.
“That’s what we’re looking for, is that trickle-down effect into the economy so that the deferrals that we’re providing ... are passed on to the individual so we can all get through this together," he said.
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