Toronto-Dominion Bank expects to increase the profits of its Canadian retail operations by an average of more than 7 per cent over the next five years through a combination of cost-cutting and growth opportunities, even as the lender forecasts lacklustre Canadian economic growth of just 2 per cent in 2016.
Bharat Masrani, TD's chief executive officer, said the lender has been integrating its businesses over the past 10 years during a remarkable growth spurt, but will now focus on making these existing lines more productive.
"Running our business more efficiently enables us to take some costs permanently out of TD," Mr. Masrani said in his opening comments at the bank's investor day on Thursday.
The remarks fall in line with what many Canadian banks have been saying over the past year, as they move to align their expenses with slower revenue growth.
Canadian Imperial Bank of Commerce, National Bank of Canada and Bank of Nova Scotia also have announced cost-cutting plans as loan growth slows and customers move away from traditional branch banking toward mobile or online transactions.
While these banks have produced hard numbers in terms of envisaged savings and, in some cases, job losses, TD shied away from releasing targets even as it acknowledges it is undertaking an organizational review. The bank took a $337-million restructuring charge in its fiscal second quarter.
"In any organization, what you'll find is that your structure is often a reflection of your history and your past strategy," Tim Hockey, group head of Canadian banking and wealth management, said in an interview. "As we look forward, we see that there are all sorts of opportunities to change how we are organized to make sure we are looking forward."
He said business leaders have an expectation to make 2-per-cent to 3-per-cent productivity improvements in each business line, partly through investing in greater efficiencies. However, Mr. Hockey did not rule out job losses.
"We're constantly optimizing our operations," he said. "We have been forever."
Some of TD's cost-cutting, though, will come from shrinking its branch footprint – either through branch mergers, closings or smaller formats – as consumers move away from traditional banking toward mobile or online banking.
The size of new, modular formats will shrink to an average of 3,500 square feet from a current average of 5,500 square feet, and the bank will invest more resources in pop-up formats and mobile branches.
"Our customers are embracing mobile, but they're not abandoning the branch for services as quickly as all the hype would suggest," said Tom Dyck, executive vice-president of community banking.
He said two-thirds of the bank's customers embrace both digital channels and traditional branches – and these customers buy more financial products and are more loyal than customers who use just one channel.
In terms of growth opportunities, TD sees particular opportunities in credit cards, which is a segment where TD lagged among its peers before rising to the No. 1 spot through recent acquisitions.
It plans to expand by one million cards over the next three years, putting a credit card in the hands of 50 per cent of its banking customers and adding $500-million in revenue by 2018.
It also plans to expand its reach into business credit cards: "We have punched below our weight in this segment, but that is changing and changing very rapidly," said Andrew Pilkington, president of Canadian credit cards and merchant services, pointing to double-digit growth.
Mr. Hockey pointed out TD's wealth-management operations would also grow with favourable demographic trends in Canada, adding another example of how retail banking can perform better than the underlying economy.
"All of those businesses continue to have individual opportunities for growth that will be beyond what the GDP of the country is," Mr. Hockey said.