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Sure, Canada’s big banks face a few challenges. But let’s be honest: They still vacuum up the majority of profits—more than $34 billion in 2015, or roughly 10 times the take for Canadian utilities and three times that of the nation’s insurers. Even when you compare the Big Six to global banks like JPMorgan and HSBC, they still shine.
Canadian banks stand out among many of their global peers for stability and big dividends—but check out those gargantuan profits, too. One way to measure how good the banks have it here is to size them up using return on equity, or net income divided by shareholders’ equity.
The average ROE for U.S. banks is 8.3%. Canada’s Big Six, meanwhile, enjoy an average ROE that’s an astounding 16%, putting them at the top of the sector in the developed world. Focus solely on their domestic operations and the numbers look even more rosy: RBC (No. 1) has an ROE of 30% in its personal and commercial banking division; at TD Bank (No. 2), the comparable figure climbs to more than 40%.
Why are Canadian banks sitting on gold? For one thing, they enjoy an oligopoly, where upstart competitors are unlikely to undercut them. For another, they enjoy the benefits of guaranteed mortgages through the Canada Mortgage and Housing Corp. That last point delivers the banks a huge advantage. Because they have low capital requirements—with the CMHC backstopping loans, the risks of default are muted—they can put more of their cash to work.
But can the good times last forever? Maybe not. With their fat profits, Canadian banks look like ideal targets for disruption.