Q2 2021 National Bank of Canada Earnings Call

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Once again, please continue to standby we thank you for your patience.

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This conference is being recorded so it closely of homes that don't go as you see.

All participants please standby your conference is ready to begin good morning, ladies and gentlemen, and welcome to National Bank of Canada.

Our results conference call.

And I'd like to turn of meeting over to MS. Linda Boulanger Senior Vice President of Investor Relations. Please go ahead and as minority.

Thank you operator.

Morning, everyone and welcome to our second part of presentation.

Presenting this morning are do we let shull, president and feel Melbourne, and Chief risk Officer, and just stay Baja Chief Financial Officer.

Also joining us for the Q&A session are low ha, Chief operating officer, Stefan and I shocking to people on shape co heads of P&C banking and I think on your own head of wealth management didn't use your hallo head of financial markets and John <unk> Senior VP of finance before.

And before we begin I refer you to slide 2 of our presentation, providing national bank caution regarding forward looking statement with that let me now turn the call over to to be rational.

Yes, you Linda and welcome everyone to our call today.

This morning, the bank reported another quarter of strong results.

Trends, we saw in Q1 carried over into Q2.

We are operating in and improvement improving economic environment conducive to business growth.

Q2, 2020, 1 pretax pre provision earnings were up 9% from last year, driven by continued momentum and all our businesses.

We continued to generate strong organic growth and and industry, leading roes, while maintaining high capital levels and prudent reserves.

Our performance once again speaks of the strategic choices, we have made over the years some diversification of our earnings streams and the resilience of our franchise.

The economic recovery is well underway and occurring and at accelerated pace.

From a macro level of consumer confidence is high with substantial savings and advanced economies fueling and global economic growth.

Domestically, we have of resilient economy.

Coupled with strong growth and the rest of the world driving up commodity prices.

Resulting in a stronger rebound to earnings and interest than anticipated.

And our home province of Quebec.

Full time employment rate is almost back to pre pandemic levels.

Construction is very strong.

Manufacturing is doing well and <unk>.

Our nation is progressing very well and the economies reopening faster than expected.

So we expect to see of good rebound and the discretionary economy later in 2020, 1 and in 2020.2.

While the pandemic, Mr and bring some negative surprises we are constructive on the recovery and the economy.

Yeah.

Our credit quality remains very strong.

The improving economic and market indicators, our PCL this quarter of almost zero, reflecting a small a small and release of performing allowances and low impaired loan losses.

Given the uncertainty with respect to the past of the economic recovery, we are maintaining a prudent approach.

On our capital deployment strategy, our priorities are first and foremost to maintain strong capital ratios.

And second to invest and our business to fuel organic growth.

And finally, returning to cash to capital to shareholders remains a priority for the bank.

Once we get the green light from the regulators.

Our intent is to increase our dividend to bring it back within our midterm payout range of 40 to 50 per cent.

Turning now to the performance of our segments and the second quarter.

And P&C banking pre tax pre provision earnings were up 9 and 12% from last year.

Driven by strong volume growth on both sides of the balance sheet, partly offset by lower margin.

The real estate market continues to be strong, which gives us good momentum and Martin and mortgage growth with volumes up 9% year over year.

More than half of our originations are still and Quebec, where fundamentals continue to be very strong.

Housing housing remains affordable relative to other geographies Fannie.

Family's finances are more resilient with a high percentage of dual income households, and quebeckers continued to have less debt and more savings than they can and average.

Furthermore, the kidney and governments reopening plan is now underway.

We also also growing our commercial loan book.

We are capturing opportunities across Canada and targeted sectors.

This includes multi residential rental development the majority of which is insured.

With low interest rates high savings rates limited supply and and anticipated return to higher integration level.

The residential property market, both on the personal and commercial side should remain strong for the years to come.

Wealth management delivered another strong quarter with pretax pre provision earnings up 16% from last year.

This was driven by favorable markets strong inflows and elevated as transaction levels.

And client satisfaction scores are and all time high supporting strong volume growth, particularly and full service brokerage services and private banking.

National Bank direct brokerage ranked first and the J D power of 'twenty 'twenty, 1 on Canada, South director of Investor Satisfaction Survey.

Assuming current market conditions persist, we are well positioned to deliver double digit earnings growth towards the second half of the year.

And then Joe markets reported revenues of $567 million, our third best quarter on record.

Revenues were up 48% and corporate and investment banking fueled by strong client activity across the franchise.

I think and invested steadily and our corporate and investment banking platform over the last several years, we now have the capacity to fully capitalize on elevated M&A and IPO volumes.

Global markets also delivered a solid quarter against a record performance last year.

In recent months, we have observed a normalization of market volatility across most asset classes.

Our results and financial markets speak to the resilience and diversification of our earnings stream.

Sumit the current environment persists, we are well positioned as we enter the second half of the year.

Our international segment delivered another solid performance this quarter.

Credit just results reflected a strong underlying performance of as I think existing portfolios and favorable impacts of and improving economic environment on provisions.

A b a bank continues to perform well with loans and deposits up 26, and 35% respectively from last year.

We are very pleased with our international strategy, which remains well positioned to deliver double digit double digit earnings growth again this year.

To wrap up.

I am very pleased about the bank's performance through the first half of the year.

And we see the same macro trends carrying over into the second half.

As the economy recovers and an accelerated pace, we are well positioned to continue capturing growth opportunities.

We will remain disciplined and we will continue to be guided by a consistent and prudent risk management approach.

Given our strong performance so far this year and the favorable environment, we are and a very good position to achieve mid to high single digit pretax pre provision growth over our fiscal 2020.1 base.

Based on what we're seeing today and should current trends continue.

We would be at the top end of that range.

Today.

And we move forward with cautious optimism focus on leveraging the strength of our franchise.

As we gradually exited the pandemic we are confident that we have the right team strategies to continue.

Generating solid revenue growth and delivering strong returns on our shoulders.

I would like to recognize and sincerely. Thank all of our colleagues and customers who have shown incredible.

Credible resilience and the last 15 months.

I wish all of them and everyone on the call is safe and restful summer.

On that I will now turn the call over to Bill go add scope.

[laughter] Massey Louis and good morning, everyone.

I'll begin my remarks on slide 7.

Credit performance continued to improve in Q2, reflecting the positive trends we've seen since the beginning of the year provisions on.

On impaired loans were $67 million or 16 basis points from the second quarter of 1 basis point improvement quarter over quarter, and 13 basis points better than the same period last year.

We saw strong performance across all sectors and retail provisions remained at cyclical lows.

Financial markets had 1 new provision and the utility sector of this quarter absent this idiosyncratic because per.

Revision impaired PCL would of been below 10 basis points.

Performing loan provisions were negative $62 million and the quarter driven by the update to our macroeconomic scenarios as well as improvements in credit quality.

We maintained the same waits for the scenarios, however, improvements and both market and economic indicators were reflected.

Each of our business sectors benefited from negative provisions and the non retail portfolios had the largest release $35 million due to both scenario updates and positive credit migration.

Total provisions for credit losses were $5 million or 1 basis point.

Given the strong performance, we've seen and our loan portfolios year to date and the improved economic outlook, we've adjusted our fiscal year 'twenty 'twenty, 1 target range to 15% to 25 basis points of provisions on impaired loans.

I would note that this range is in line with their pre pandemic run rate and impaired provisions.

And we would expect to finish in the bottom part of that range.

Turning to slide 8.

We continue to maintain prudent allowances for credit losses, which at $1.3 billion or 70% above our pre pandemic level.

Total allowances declined by 3% on a quarter over quarter basis, but remained higher than the same period last year.

Allowances on performing loans declined by $74 million this quarter to $977 million.

I'll point out that this is about the same level that we had a Q2 last year after our significant reserve build and the early stage of the pandemic.

This level of performing allowance provides ample coverage of our portfolio's risks and reflects our desire to remain prudent at this stage of the recovery.

Looking forward the level of performing allowance will be driven by the path of the economic recovery credit migration and volume growth.

Allowances on impaired loans increased by $25 million to 382 million, representing a healthy 52% coverage of gross impaired loans.

To help investors assess the adequacy of our allowances on slide 9 we provide several relevant metrics.

Performing allowance coverage of our impaired provisions increased to 3.3 times.

Total allowances now cover 6.4 times, our net charge offs and represent 83 basis points of total loans.

These strong metrics reinforce our belief that we are very well provisioned.

Turning to slide 10.

Our gross impaired loans declined to $731 million or 42 basis points and the quarter.

Formations remained low as the 1 new formation and corporate banking was offset by net repayments and the P&C sector.

Details of our retail mortgage and HELOC portfolio are presented on slide 11.

The geographic and product mix remained stable with borrowers and Quebec, representing 55 per cent of the portfolio and insured mortgages accounting for 35 per cent of the total.

Additional details of our credit portfolios and market risk or presented in the appendices in summary, we're pleased with the performance last quarter. The positive trends we've seen since the start of the year have continued supported by good progress and vaccinations and improved expectations for economic recovery.

We are cautiously optimistic that these trends will continue through the second half and believe the resilience of our portfolio position us well going forward.

I'll now turn the call over to just land.

Thank you Bill and good morning, everyone turning to page 13.

The bank delivered another strong performance and the second quarter supported by our diversified business model and the different she is differentiated positioning of our segments.

With revenue is up 8% year over year and of positive operating leverage of 1%. The bank delivered strong pretax pre provision growth of 9%.

Higher expenses year over year were mostly driven by higher comp as a result of our strong performance.

Excluding variable compensation expenses were up 1% year over year and reflect continued investments and our business.

Looking forward true to second half of the year.

The year over year comparison of expenses will be impacted by the combined effect of value.

Here of variable compensation this year and the lower variable comp expense recorded in the second half of <unk>.

Last year.

As mentioned previously we continue to work towards achieving positive operating leverage for fiscal 2021.

As always the team maintains a balanced approach between growth investments and rigorous cost management.

Now turning to capital on page 14.

We ended the second quarter with a strong CET 1 ratio of 12, 2% up 25 business points from last quarter.

We achieved strong net income generation of 54 basis points, reflecting the robust performance of our businesses and.

And of very low provision for credit losses.

Strong organic growth and commercial and corporate banking.

Led to risk weighted asset expansion or presenting dirty business points of CD 1.

Favorable criticism of duration and.

And retail and non retail portfolios and freed up.

4 basis points of C. T..1 this quarter.

For the third quarter.

We estimate that the unwinding of the regulatory and market risk relief will of substrate 15 basis points from our CET 1 ratio.

Now turning to page 15 of our liquidity ratios are strong with LCR ratio of 150% and of net stable funding ratio of 125 per cent.

Our total capital ratio increased to $16.4 per cent.

In conclusion, the bank delivered another strong quarter with solid organic growth.

Industry, leading Roe.

And high capital levels.

And with a strong balance sheet significant reserves and diversified revenue levers our franchise is well positioned to continue generating attractive growth through fiscal 'twenty 'twenty, 1 with that I will turn the call back to the operator for the Q&A.

Thank you.

Take questions from the telephone line.

And you are using a speaker phone please lift your handset before making a selection of quest.

Question. Please press star 1 on your devices.

You may gain some of your question at any time by pressing star 2.

Please press star 1 at this time, if you have any questions.

Paul from all participants with just a full of questions.

Thank you for your patience.

Our first question is from Gabriel day, Shane from National Bank Financial. Please go ahead.

Hi, good morning, and it wasn't.

Prepared to be first but here we go.

Just wanted to ask about the trading commentary, there and I've talked about.

Mid 'twenty.

Sure.

And it says securities financing and volatility was low.

I'm just wondering is that of <unk> and in quarter Q2 specific comment or the part of a trend and not the volatility of part of the securities financing and particularly because of the husband.

Pretty pretty important driver and Uh huh.

Yes.

And <unk>.

Yes.

And remember of serious finance is really driven by right now.

And a lot of liquidity dies and the system all of sudden from bank of the government and are providing a lot of liquidity since the beginning of of Penn day meal, and it's still there and as long as you know those 2 will persist and there'll be a active and providing a lot of liquidity. We will see we will see the securities finance, having lower numbered on what we used to have low as soon as.

As those too.

And 2 active are 3 things on the market that will disappear and we will see the activity of moving up it's very tough right now to put the balance sheet debt to work at level that we sell prepaid Danielle.

And but despite of that we have really good results.

Some of them somewhere else then we're not that.

I'm pleased by the situation.

Phil.

So doing quite well, but we expect that maybe in 2022, we will see things going back to where they were people and Daniela and you'll see better numbers on that.

And that sectors. Okay. Thank you and my next question is on.

On inflation.

Macro question here and.

You know we are bill I'd like to hear your thoughts on what you're thinking about in terms of.

Opportunities that.

You know of higher inflation and create for the bank.

And then and and risks.

Heard about I mean.

Sense of the back book of Ltvs go down which is great.

But you know more careful on on new origination specific to the mortgage book, but I wouldn't mind a bit more broader commentary on on the lending activities.

And then elsewhere and really.

Thanks, Kevin and that's it.

A big picture question.

Now we are.

And I believe on the last dinosaur around the table that didn't work and not an inflationary environment.

So we are having that discussion at the risk.

Of risk committees and.

Even though.

The PDP of how we would adjust and we should adjust.

On a risk policies in terms of market risk and liquidity risks.

And and ultimately a credit risk and a more inflationary environment.

By and large.

Hi.

And it would require a bit of a change in mindset, particularly with.

With traders and.

And our risk managers that have seen rates dropped continuously for the last 25 years.

That would be on adjustment, but off the top of my head when we're looking to this.

And again, if we have a moderate increase in inflation and I think that's quite good for the Canadian economy on.

I think that would be quite good for the banking industry generally.

So that's that's how we would approach it now a large increase and inflation, which would bring a large inquiries and interest rates would bring and probably a different outcome.

But right now I think we still perceive that as of low probability event.

Our scenario, so, but a bit more inflation and the system as.

As of lenders not a bad thing slightly.

Slightly higher nominal interest rates and not a bad thing.

On the higher inflationary expectations at least initially.

And bring a steeper yield curve and again and as we say all of the time don't confuse genius and a steep yield curve.

It's always easier and make money and as TV curve environment for a bank.

So and that were bank.

Probably a bit of a bit more volatility and I think we're well equipped as an organization to deal with that volatility.

So.

That's you know, we could debate and discuss that for for many long minutes, but I would stop my comments, there and get out yet.

Okay.

And anything to add bill on the underwriting side.

I think Louis covered did well, but on the underwriting side and certainly a tool that we use is stressing the resilience of balance sheets to higher rates and certainly as we are.

And we're gaining and inflationary scenarios.

And increase the size of the interest rate that could happen to distress the resilience of of a bit further.

All of that comment on now Gabriel.

Thank you and have a good weekend.

Thank you. Our following question is from Scott Chan from Canaccord Genuity. Please go ahead.

Good morning, I don't know if I missed this but I'm looking at on your Crazy and.

And the equity bucket I noticed and St. Louis.

Revenue quarter, since Q2, 19, and and a bit on trade to kind of others.

This quarter was there anything specific from national.

To point out this quarter.

Thanks Scott.

Oh.

When you compare Q2, 'twenty, 1 versus let's say Q1, 'twenty, 1 and then Q2 'twenty. There's 2 things of that those 2 quarters are art and common first a lot of volatility and second of lot of volume for different reasons, but those 2 quarters were really really.

Outstanding compared to our Q2.2021, but.

But despite of that we're kind of pleased with what we're seeing in term of of activities in the trading and.

Trading side and.

And you're right when you compare to Q2 thousand 19, then and we still produce of $53 million more than in Q2, and 19% and Q2 'twenty..1 and then you know yesterday was kind of of normalization because of Q1, 'twenty, 1 and Q2, 'twenty and were outstanding and Theyre not relieved of the norm that you can see over years and.

We're not that concerned about Q2 'twenty 1 yes.

And when you want right now.

Okay and.

On the international side.

You know kind of clean results on okay.

Okay.

Look at the financial metrics, it's very similar and.

In terms of revenue and expenses going down to the bottom line and I know your target of double digit earnings growth and fiscal 2021, but is there and how.

And of which of those international segments is expected to grow faster.

Sure.

Maybe I'll start and send to understand and you can add.

I think both on and where I think we're quite optimistic on on both of them.

EBITDA is a steadier growth profile.

And then and then credit G credits and he can come and kind of.

Quarter to quarter volatility.

Or are you know a very positive long term trend. So I think Scott we remain.

We remain positive on the on both of our business lines.

On an equal basis, I don't think we're more optimistic on 1 versus the other.

Okay. That's helpful. Thank you very much.

Thank you I'm. Following question is from many Goldman from Scotia Bank. Please go ahead.

Yeah, Hi, good morning, when I looked at your publish rates sensitivity definitely looks like it's understating the actual upsides.

Looks like it's not comparable to other bank. So I'm just wondering.

How would you help us think about the upside to rising rates are poor national Bank supplement.

And the published sensitivities that you provided.

Yeah I'll start many yes. Thank you for that yeah. It only shows some of the treasury position. So we are working.

And I think by Q3, and we'll have a more.

Bleak picture.

Of.

Our interest rate sensitivity, which I think your assumptions are right are our higher and then what's shown there but my friend.

There's not there's no as a teaser for you.

So what's the teaser Mr debt.

As you know gate increase and interest rates will be positive for net interest income and we are reviewing the assumptions underlying this of disclosure. So we do expect that at least doubling the 60 basis point and debt is currently disclosed.

And that's exceeded 60.

And $60 million, sorry, and that'd be.

$60 million, which is disclosed in Q2 and disclosure.

Sure.

When we have more precise number on all of the assets and liabilities.

Got it.

Okay.

Teaser hasnt been interested solely from the maintenance and thank you Sir and thank you.

Thank you. Our following question is from Sohrab <unk> of Haiti and will come.

Joe market. Please.

Please go ahead.

Okay. Thank you very much.

I did notice that you you were very pleased with the results of this quarter said that I think is of net difference from previous quarters that got me distract it. So I think when you were talking about.

Our pretax pre provision out into 'twenty 'twenty 1.

The total bank level.

You said you expect to be around high single digit growth did I hear you correctly.

What I said verbally was so we reiterated our range of mid to high single digit and and I mentioned that we would expect to be at.

Very top and of that range.

And that was specific to pretax pre provision just for clarity that is correct, yes. Thanks for cash.

Yes.

And that's okay. Thank you and so then if I hear some of the current entry alright.

And financial markets Securities financing transactions, and maybe equities normalizing.

So this would suggest.

And you have that.

And I have been more favorable I guess bias to the non financial markets mixes of the bank is that fair. When you think about this pretax pre provision kind of.

Outlook.

Not necessarily because.

As you know suraj.

We don't know and this current environment, where we have.

Frankly, somewhat experimental monetary policy somewhat experiment of fiscal policies.

A lot of new technologies, and a lot of things moving in and on the geopolitical front.

And on the climate front I would not underestimate the potential of volatility of coming back very quickly, it's just difficult to predict but I think as a whole as a general statement.

I think volatility is going to be a present factor likely to be on the foreseeable future.

And that's 1 thing and the second 1 is.

If you look at our results I think Danny.

And then he was.

And did explained it well, but I think it was a landmark resolved for us and capital markets in the sense that we.

We had very strong results and M&A and also on equity.

Capital markets origination and that type of a resolve that this franchise would not have had 3 or 5 years ago. So I think it was important for us to show that.

No I think our financial markets Division is much more balanced and it would have been 5 years ago for instance of Rab. So that's why I'm not I'm, not giving of pass or a break to our today and he and his team in terms of day results for the second half of the year, because we don't know it could easily change very quickly.

Okay, that's perfect and so if I just if you think about that pretax pre provision and you think about your mix of business days.

Do you think.

That outlook.

And maybe even being closer to top and if the curve is that more of it revenue driven.

And of optimism or is that going to be more because you're focused on expenses.

I would think it's always a bit of both I think we've been pretty good on managing both.

But and the current environment I think.

We've seen that at least for the first 2 quarters around.

I think and I look around and I think most people are everybody is nodding I think the.

The revenue patterns.

The major trends that have been driving revenue growth.

And I still appear to be very present in Q3.

So I.

And I think that's going to be.

The key factor and frankly.

I'm kind of old fashion, and I think the way you measure the strength of of franchise is on its capacity to grow revenue line.

And I think that's why we've demonstrated and I think we're still on a good position to demonstrate that.

Okay, that's perfect and if I can just get 1 last question you as an organization certainly U S. Representative of this organization over the last number of quarters.

Uh huh.

You are being cautious and this is pre pandemic.

Therefore, we are going to ensure that we don't make we've done from the past.

And this takes and what have you and we're ready to essentially be very fun with it once the cycle turns and obviously COVID-19 did what he did.

Yeah.

As the stimulus programs has the ability for all of the other banks to get a free pass if you will too.

No.

Put up reserves and what have you has that in any way.

You did what you would have assumed to be of comparative.

And you said you were.

Preparing for when you were being careful prepay and then are you seeing the same business opportunities for you to your franchise or do you think competition is now deferred because by hook or by Crook and they were given a bit of a free pass and over the last let's say 12 months.

I think we are benefiting from from our position and out of positioning is.

Hopefully.

Our risk management culture is what's behind that and more than just a balance sheet positioning.

You recall that I think we had a pretty conservative positioning in terms of commercial real estate.

And we have seen.

Some of our peers have become much more conservative and last 12 months and we've seen more opportunities. So we did pivot 1 area. We did pivot from being you know a bit more conservative than our peers to to being very present and the market is commercial real estate, but again, very specifically and areas that we feel.

<unk>.

Makes a lot of sense and again, I think where we want to avoid generally as you know as a book.

Boom to bust.

Credit allocation culture, where you know you go from having both feet on the accelerator to both feet on the brake pedal.

And I think by being prudent and throughout cycles and allows us to avoid you know.

Placing both feet on 1 of the 2 of paddles, which brings about I think confusion and and the business lines and confusion with customers and I think we have I think we did benefit from that and frankly and when you look at our commercial loan growth volumes in Canada, and I think that reflects a little bit of that.

Right of bit of that actually.

Excellent. Thank you.

Thank you. Our following question is from Nomura Prasad from <unk> Securities. Please go ahead.

So my first question for Bill like when I look on your slide 9 and the debt coverage ratio as Theyre moving materially on here here and given your outlook for impaired PCL over the next couple of quarters. It suggests that you were setting up for.

Attractive releases and performing going forward and first is that the message you're trying to convey here.

Thanks, Laura for the question would be I think.

<unk> that debt.

You can take away from that chart is we're very very comfortable with the level of provisions, we think of it and we're very well reserved.

Think of the mindset that we have is we would like to remain prudent.

This stage of the recovery like we were prudent and the early stages of the pandemic. So.

I think that that slide demonstrates of those points. So does that answer your question.

Yeah, and just like and I'm really trying to get a bit of a sense of is there something that I'm missing that would preclude that bank from from from taking its performing acl's down to something that we saw.

Pre pandemic.

That's really good cash.

And I'm sure yeah, Okay. Thanks Lombardi yet.

I don't think so the debt.

The drivers of the Acos are really going to be as I said in my script. It's 3.3 main drivers 1 is the.

The macro outlook and we've seen positive trends and we expect that those could continue but there can be surprises and we'll review that every quarter.

The credit quality, we've seen the beginning of the positive credit migration and it looks like that could continue but we will see each quarter.

And and volume growth will be of factor as we continue to see good opportunities for growing the franchise.

So the debt.

The messages that we.

We are we have good allowances and those drivers will lead to.

2 releases and a smaller allowance and the future, but it is difficult to predict the timing of that so I think over time, if we go back to the same position with it as we were pre pandemic with the same portfolio. The same macroeconomic outlook you can expect that the those ratios would resemble.

They were before the pandemic, but the timing of that is it's hard to predict.

Okay. Thanks, and then my second question and it's just really on the commercial loan growth and very strong. This quarter. So can you talk about you know.

Some of the drivers of the strength this quarter and.

And what are the chances and we could see that level of growth that growth moving forward.

Yeah, and so it's Stefan here.

I would expect that growth to to maintain and over the third quarter and probably resume towards historical levels and Q4 and ongoing into 2022 and the drivers behind and we as well addressed we built and real estate platform.

Capable of addressing the needs and the market for affordable housing and we've been capturing.

Good market share largely insured across the country well diversified that's the first element the second element as well is as the real estate market Louise mentioned as of.

It is really a affordable remains affordable and Quebec here, and we're taking advantage as well as of second and third belts around Montreal or are building and constructors or active and so we're supporting these clients that eventually move on to.

Residential mortgages for us.

Okay, great. Thank you.

Thank you. Following question is from Nigel D'souza from Veritas investment Research. Please go ahead.

Thank you good morning, so a fairly strong quarter overall, but I wanted to touch on the increase provisions at ebay. So maybe he has performed fairly well.

Throughout the pandemic. So I was wondering if theres any stresses or anything specific.

And that you could point to for our higher provisions this quarter anything.

Specifically or any color that you're seeing in regards to a bank.

Yes, I can start off yes, there'll be those provisions were performing provisions so I'll point out and just as the.

Remaining prudent we saw the.

Third wave of and.

And that make.

Hit.

Cambodia, a little more than it had and the first 2 waves. So kind of thought we wanted to be prudent in terms of building more performing.

And the situation, maybe you can comment Fuji and found the situation currently.

And of handling the third wave and Cambodia.

Yeah, well decisions so we had a.

Confinement of 2 provinces, including debt capital or earlier.

And during the month of April and May, but it's small hoover so on.

No.

And commercial activities.

So we think debt.

Could be it could be.

And the impact of eventually on the.

On the losses.

We don't think that it's going to be to be high and in terms of impact on growth. We saw some impact but once again, it's very small and we think debt for the rest of the year and 2020 to 2 of do remain very solid.

Okay, that's helpful and.

If I could.

Vivek to your deposits side and upon.

All of these if you already touched on this but do you have any commentary on your outlook for <unk>.

Painting or 1 off of those excess deposits with liquidity elevated across.

Cost of the system at the moment do you expect.

Those deposits do you remain on balance sheet for let's say the next 3 to 6 months or do you see that.

Training fairly and accelerated rate as the reopening of has gone away.

And it really agile it really depends on which business lines and.

On the retail I think we were discussing debt earlier I think.

We expect pretty elevated levels of deposits on the retail front and wealth management going forward right.

Yeah. So the way we look at it and we expect on the path of simple to remain high and we don't expect and drastic run off of the deposits obviously the growth rate will slow down and.

But on the consumer side, we think the consumer and we remain prudent and are slowly.

Rammed down the deposits over time much longer than we thought it would at the beginning.

And if and on the commercial side same thing on the on the commercial I think I think deposits are stickier than what we expected at the beginning of the pandemic and they're likely to businesses have strong liquidity and I don't think and although spending all of that cash up businesses are operating at a profit and that's the reality. So I think it will take more time than we expected.

And Lisa those deposits of write off.

Could you perhaps touch on.

Cause of that excess liquidity do you expect loan growth to the lack of reopening of bit is that fair to say and or how do you see the interplay of deposits and loan growth of low loan demand.

So certainly on the on the commercial side and and.

I won't talk about our peers, but the reality is drawing us on operating lines across the country are historical lows I would expect those to remain low and gradually creep up over time, which is not to say there is not as <unk> seen opportunities for per asset growth and the segments specific segments like we've seen and we've done.

And real estate insurance, as I mentioned and and our specialties of the tech market the AG market.

Somewhat more active other elements of private equities have not flood the market. So there's still opportunities on that side as well.

And anything on the retail side. Yeah go ahead, yeah. So on the retail side I think that deliver of deposits and liquidity that we have is a contributing factor to keeping and demand.

And really stayed high.

So it took quite a tail on that front and on the from the credit and perspective.

And also a positive because we see we still continue to see decreases in any and consumer unsecured loans, including credit cards.

Okay I appreciate the color. Thank you.

Thank you all following question is from Darko.

Hello Barbie for free.

Good day.

From RBC capital markets and please go ahead.

Hi, there good morning, hopefully that's not my phone, making all of that promotion.

My question is with respect to the personal and commercial.

And what I'm looking at is the strength in the noninterest.

Revenue and you guys point to.

The strength and sort of well.

The revenue is being generated there can you kind of can you kind of remind me.

Is that purely from sales activity in the quarter or is there some sort of linkage.

2.

AUM or like I hate to use and we're trainer commission, but when it's all purely based on how well sales of going at the branch.

Of wealth product or is there something else driving that strength.

No. It's really those first the first element of Darko and we've had we've had and for a couple of quarters now with growth in mutual fund from the volumes coming out so far.

And.

The liquidity, we see consumers are saving more and investing more and we've seen that over the past 4 quarters. So we have good increase and unusual phone volume and that is driving out some of them.

And so on funds.

Okay and so.

I guess the.

Secondary sort of follow up to that is yes.

As you sell those funds.

C of higher expense out of the well for paying commissions to the Brent is that we.

And the way I should think of that.

And I know, it's netted from revenue.

Net is balance.

Because it's in terms of inter sector transfers, so naturally from avenues and wealth management okay.

Okay perfect.

That's great. Thank you very much from that for that clarification.

Thank you.

Our following question is from Paul Holden from CIBC. Please go ahead.

Good morning, and wanted to ask another big picture type question. So.

We heard you lay out a very positive outlook.

On the business. This morning, we've heard similar from other banks, you know loan growth starting to improve the prospect of higher interest rates.

Financial markets revenue still remaining elevated excess capital of almost like a goldilocks type scenario.

And that just and I'm there with you I kind of agree with that outlook kind of begs. The question are there any kind of risks maybe were downplaying, we're not thinking about.

So ex pandemic as Youre, having those risk committee discussions are there are there any big picture of risks you could see to disrupt that positive outlook.

Well there's.

It's really 1 is that.

The scenarios and we look at it as a.

And 1 is a new complication.

With the Pandemics, namely another variant and none of mutation.

And yet again delays.

Quarter on court return to normal.

None of us of day expertise to.

<unk> really.

And put a probability around that but I think it's not a zero, it's a lower probability and as we as a higher percentage of presented of course population gets vaccinated I think that probability around that particular scenario, we'd probably goes down significantly, but I don't think it goes down to zero and so that's 1 the other 1 I think which is a.

More likely scenario that we need to monitor very carefully is the fact that our KOL day lock gets overheated.

And.

You know that.

And inflationary pressures.

Start developing more and the economy and debt asset valuation and asset prices across the different segments.

You know get to.

To extreme levels, you may argue that we've seen some phenomenon and some asset classes already.

But.

And if that if it is to localize and things of that Cryptos that don't have clear length of the banking system start of huge concern to us, but if it if it gets to a much wider spectrum of asset classes.

All of which are connected to the banking.

And our banking or more specifically our balance sheet debt I think we would.

Would be a lot more careful.

And that would be a scenario that would be a greater concern.

So I think goldy lock is with us for a period of time I think even if.

And I don't know what stage and what the probabilities would be around the over half of our heating of scenario, but I think all day long is probably with us for a period of time and then.

And we'll see how.

The economy and markets evolved over time that's for sure.

Okay and.

A more specific question for you with respect to that.

Capital build I know I know your preference and that's pretty consistently be no hold onto it for organic.

<unk> growth opportunities.

As it continues to build is there any more thought towards maybe returning some of it to shareholders through <unk>.

True buybacks.

So I think we've been pretty specific on.

On our priorities to organic growth as I said, and then dividend I think we are.

And we're quite clear that.

But dividend.

And I don't want get into that.

Theoretical debate about dividends versus buybacks, but dividends are more I think of signal are low.

Long term resilient level of earnings.

That's why you should be basing your dividend on your capacity to pay them and to stay comfortably.

And my view and the low forties in terms of payouts.

And have a nice cushion if there's a recession so that's the dividend discussion and.

And I think where we should be and a good position to increase dividends.

Probably even quite substantially once on a rigor of recurrent basis, once where we get the green light from the regulators on the buybacks. It will depend I think we're agnostic on this it's not a it's not a tier logical debate for us if we have excess capital on top of what we need to grow the balance sheet organically.

Daniel will depend on what you know what acquisitions tuck in acquisitions, we have versus buybacks and having that flexibility.

And that choice I think usually brings.

And hopefully better a better set of decisions and.

In terms of capital allocation.

And I'm sure. It does it does and that's very clearly thank you.

Thank you once again, please press star 1 at this time for any questions or comments.

Our following question is from my grandson of Bank from Credit Suisse. Please go ahead and good.

Good afternoon, a quick question for Bill I'm wondering if you could touch on the <unk>.

Write offs, just beef or charge offs, just being so low and I'm wondering how much of a factor of do you think there is with respect of the walk downs.

Probably more so on the consumer side, but I can imagine debt.

And getting somebody through and insolvency process, whether it's a bankruptcy or a proposal would be probably very challenging winter.

Things are locked down and so do you feel like there is this maybe a bit of of backlog being created on insolvencies, just because of that and then.

It's just inevitable and just a matter of time before we see some some normalization there.

Thanks, Mike for the question I think early and the pandemic day locked down and certainly had an impact and things.

The core processes and such being.

<unk> being being stopped.

Think the the low.

Right right offs of charge offs that youre seeing though is really.

A reflection of excess liquidity and the retail segments. So the.

We are at.

Historical cyclical lows and and and provisions and paired provisions and write offs for for the retail and we.

At the beginning of the year at the end of last year, we would have predicted that those would have started increasing and the second half of this year, but the metrics that we're seeing and the portfolio continue to be very strong so I think that.

We would expect some normalization from these very low levels, but it may take longer than we would of thought at the beginning.

In fact last quarter, I think I talked about seeing the delinquencies and credit cards increased off the bottom this quarter. They really went back down again, so so how long it'll take to normalize on the retail I think will be a longer period of time and then on the wholesale.

On the stress has been.

Very much and specific sectors impacted by the <unk>.

The virus of the Covid situation and the support programs have worked we are seeing positive credit migration across the wholesale portfolio and particularly I think the highest migrations and some of those hard tech sectors and retail distribution and wholesale distribution. So the.

Looking forward.

2 the what will happen and the rest of the year and and.

2022, it looks like a continuation I think that's why on the impaired on the guidance for provisions.

And the range that we provided the 15 to 25 is bang on where our historical pre pandemic provisions.

Ben.

And for I think as many years as I've been in this chair so I think that should give you and.

And idea of what we see and the portfolio. So at some point of normalization on the retail.

Wholesale still a specific and those sectors and.

Certainly its performance and better than we would have expected at the end of last year does that help you Mike Yeah. No. That's very helpful. In terms of the color and so.

Would you have confidence that normalization, maybe means and again, particularly on the consumer side that perhaps insolvencies don't settle back to pre pandemic levels and like.

Would you be of the view that maybe they settle at lower than pre pandemic levels. So what we saw in 2018 and 19 of as a baseline.

It's hard to say.

Mike.

Very hard to say.

And my comment would be we watch very closely the employment levels and what we've seen have been.

Particularly and the higher wage sectors employment levels are higher than they were pre pandemic, we certainly seeing some of the other segments waiting for the reopening and we will have to wait and see how that goes and then in the coming months and quarters across the country. So it's very very difficult to try to predict.

And whether it will end up back at or below or little bit above.

Okay. Thanks for the color.

Yeah.

Thank you.

And we have no further questions with just sort of at this time I would now like to turn of meeting back over to you Mr. Vishal.

Thank you, let's just like to make a just a little adjustment I say of self proclaimed myself, the only dinosaur traded and inflationary environment around the table of Ashley My friend and Israel law of joined the bond desk of the case and therefore 1982.

Got experience with trading inflation also so on debt on setting there of record straight.

Thank you again very much for your time and we'll talk to you in August for the results of the third quarter. Thank you very much.

Thank you.

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