Q4 2023 National Bank of Canada Earnings Call
Speaker 1: The conference is being recorded. This conference is being recorded.
This conference is being recorded so it calls for homes that don't go as you see.
Speaker 1: All participants, please stand by your conferences ready to begin. Good morning, ladies and gentlemen, and welcome to National Bank of Canada's Fort Quarter Results Conference call. I would not like to turn the meeting over to Madame Mariana Ratti, Vice President and Head Investor Relations.
All participants please standby your conference is ready to begin good morning, ladies and gentlemen, and welcome to National Bank of Canada Fourthquarter.
<unk> Conference call I would now like to turn the meeting over to.
Money on that.
Vice President and head of Investor Relations. Please go ahead.
Speaker 2: and good morning everyone. We will begin the call with remarks from Laurent Ferreira, President and CEO , Marie-Chantal Jangra, CFO , and Bill Bohnert, Chief Risk Officer.
And good morning, everyone.
We will begin the call with remarks from low Ha ha, President and CEO, Matthew talked out of Shanghai, She asphalt and Bill Bonello Chief risk Officer.
Speaker 2: Also present for the Q&A session are Lucy Blanchet, Head of Personal Banking and Client Experience. Michael Denham, Head of Commercial and Private Banking. Nancy Pakeet, Head of What Management as of November 1. Etyann DuBouk, Head of Financial Markets, also responsible for CradiGee. And Stéthane Chas, Head of International, responsible for ADA Bank.
Also present for the Q&A session are she loves Shaq Handoffs personal banking and client experience, Michael then I'm head of commercial and private banking.
And then she'd like yet head of wealth management as of November 1st It tends to <expletive> had the financial My Cats also responsible for credit G and they found that Shah head of international responsible for a bank.
Before we begin I would like to refer you to slide two of our presentation for information on forward looking statements and non-GAAP financial measures.
Speaker 2: Before we begin, I would like to refer you to slide two of our presentation for information on forward-looking statements and non-GAAP financial measures.
The bank uses non-GAAP measures such as adjusted results to assess its performance management will be referring to adjusted results unless otherwise noted I will now turn the call over to at all.
Speaker 2: The bank uses non-GAAP measures, such as adjusted results, to assess its performance. Management will be referring to adjusted results unless otherwise noted. I will not send a call over to Laura.
Speaker 3: Thank you everyone for joining us. This morning, National Bank reported earnings per share of $2.44 for the last quarter of 2023 and of $9.60 for the full year.
And thank you everyone for joining us this morning National Bank reported earnings per share of $2.44 for the last quarter of 2023, and nine and up $9 60 for the full year.
Speaker 3: On the back of strong execution, organic growth and tight expense management, we delivered on our pre-tax pre-provision earnings objective for 2023 with 7% growth over last year.
On the back of strong execution organic growth and tight expense management, we delivered on our pretax pre provision earnings objective for 'twenty to 'twenty, three with 7% growth over last year.
Speaker 3: Through sustainable dividend increases, we reached our target dividend payout ratio range of 40 to 50%. Our ratio now...
Through sustainable dividend increases, we reached our target dividend payout ratio range of 40% to 50%.
Our ratio now stands at 41%.
Speaker 3: This morning's 4% quarterly dividend increase effective Q1 2020.
This is excluding this morning's 4% quarterly dividend increase effective Q1, 'twenty 'twenty four.
We also generated a return on equity of 16, 8%, while growing our capital position and ended the year with a CET one ratio of 13, 5%.
Speaker 3: We also generated a return on equity of 16.8% while growing our capital position and ended the year with a CET1 ratio of 13.5%.
Yeah.
Speaker 3: Looking at the Canadian economy, which contracted 1.1% in Q3, the effects of tighter monetary policy are kicking it. This is...
Looking at the Canadian economy, which contracted 1.1% in Q3 the.
The effects of tighter monetary policy are kicking it.
This is putting pressure on our customers.
Speaker 3: with consumers and businesses having to adjust to higher boring costs.
With consumers and businesses, having to adjust to higher borrowing costs.
Speaker 3: Domestic demand has slowed and the labor market has stopped.
Domestic demand has slowed and the labor market is softening.
Speaker 3: Housing costs are rising due to higher rates, limited supply and population.
Housing costs are rising due to higher rates limited supply.
Population growth is.
Speaker 3: As a result, we are operating in an environment where the outlook for economic growth remains challenged.
As a result, we are operating in an environment, where the outlook for economic growth remains challenging.
Speaker 3: In this context, our diversified business mix and our disciplined approach to credit, capital and cost management positions us well and will continue to guide our path forward.
In this context, our diversified business mix and our disciplined approach to credit capital and cost management positions us well and will continue to guide our path forward.
Speaker 3: We have a solid credit profile and are building prudent reserves in line with business growth and credit normalization.
We have a solid credit profile and are building prudent reserves in line with business growth.
Normalization.
Our capital deployment strategy remains unchanged as does our target of generating ROE of 15.
Speaker 3: Our capital deployment strategy remains unchanged, as those are targets of generating ROE of 15.
20%.
Speaker 3: Our objective is to maintain strong capital ratios, invest in business growth, deliver sustainable dividend increases, and provide flexibility.."
Our objective is to maintain strong capital ratios invest in business growth deliver sustainable dividend increases and provide flexibility.
Turning now to the performance of our business segments.
Speaker 3: Personal and commercial banking delivered strong results in Q4 and for the full year, with pre-caxed pre-provision earnings up 16% in 2023 over last year.
Personal and commercial banking delivered strong results in Q4 and.
And for the full year with pretax pre provision earnings up 16% in 2023 over last year.
Speaker 3: These results were supported by the positive and margin expansion from rising rates as well as solid volume growth on both sides of the balance sheet.
These results were supported by deposit driven margin expansion from rising rates.
As well as solid volume growth on both sides of the balance sheet.
Speaker 3: 2023 also marked another successful year on the client acquisition and satisfaction
2023 also marked another successful year on the client acquisition and satisfaction fronts.
Speaker 3: Our commercial loan book experienced strong growth with lending volumes up 3% sequential.
Our commercial loan book.
<unk> strong growth with lending volumes up 3% sequentially.
Speaker 3: Personal loans were up 1% quarter over quarter as mortgage growth continued to moderate.
Personal loans were up 1% quarter over quarter as mortgage growth continued to moderate.
Speaker 3: As always, we remain disciplined on new originations, balancing volume growth, margins, and credit quality.
As always we remain disciplined on new originations balancing volume growth margins and credit quality.
Speaker 3: 2023 was a record year for wealth management with total revenues exceeding 2.5 billion.
2023 was a record year for wealth management with total revenues exceeding $2 5 billion pre.
Speaker 3: Pre-tax, pre-provisioned earnings were up 8% over last year, benefiting from our strong client franchise.
Pretax pre provision earnings were up 8% over last year benefiting from our strong client franchise.
Speaker 3: Our Wealth Management Business Delivers Superior Returns year after year and is a key pillar of our growth strategy.
Our wealth management business delivers superior returns year after year and is a key pillar of our growth strategy.
Speaker 3: Looking to 2024, fee-based revenues from our client franchise will remain relied on market performance. Our focus is to continue growing our client base as was the case in 2020.
Looking to 2024, she based revenues for from our client franchise will remain relied on market performance. Our focus is to continue growing our client base as was the case in 2023.
Yeah.
Speaker 3: For our core banking operations in PNC and Wealth, we expect the increase in net interest income from higher rates to modern.
For our core banking operations in P&C and wealth, we expect the increase in net interest income from higher rates to moderate.
Speaker 3: Our financial markets business delivered net income in excess of 1 billion once again in 2023 demonstrating resilience in all market conditions.
Our financial markets business delivered net income in excess of 1 billion once again in 'twenty to 'twenty three demonstrating resilience in all market conditions.
Speaker 3: Corporate and investment banking delivered 16% revenue growth in Q4, capping off a record year with revenues of 1.2 billion.
Corporate and investment banking delivered 16% revenue growth in Q4 capping off a record year with revenues of $1 2 billion.
Speaker 3: This highlights investments we have made in talent over the last several years.
This highlights investments we've made in talent over the last several years.
Global markets also delivered a strong quarter, we expanded our activities and securities finance through the year.
Speaker 3: Global markets also delivered a strong order. We expanded our activities and securities finance through the year.
Speaker 3: structure products also benefited from a pickup in volumes and normalizing equity volatility in Q4 compared to the prior quarter.
<unk> products also benefited from a pick up in volumes and normalizing equity volatility in Q4 compared to the prior quarter.
Speaker 3: We continue to grow and diversify our financial markets business and build upon our expertise in select areas while maintaining discipline, risk, manage.
We continue to grow and diversify our financial markets business and build upon our expertise in select areas, while maintaining disciplined risk management.
Looking at next year.
Speaker 3: Looking at next year, the segment will be subject to the proposed Canadian dividend tax measure.
This segment will be subject to the proposed Canadian dividend tax measure.
Speaker 3: Despite this change, we expect to deliver year-over-year net income growth for financial markets in 2024.
Despite this change we expect to deliver year over year net income growth for financial markets in 2024.
Credit team also delivered a solid overall performance in 2023.
Speaker 3: Cradigy also delivered a solid overall performance in 2023.
Speaker 3: Revenue is in Q4, increased 13% sequentially, reflecting the performance of our portfolios and prepayment revenues.
Revenues in Q4 increased 13% sequentially, reflecting the performance of our portfolios and prepayment revenue.
Speaker 3: In an uncertain macro environment, the franchise selectively deployed capital throughout the year with success, growing average assets by 13% consistent with our 2023 object.
In an uncertain macro environment the franchise selectively deploy capital throughout the year with success.
Growing average assets by 13% consistent with our 20 twenty-three objective.
Speaker 3: Critergy continues to demonstrate its ability to execute in various economic environments.
Credit continues to demonstrate its ability to execute in various economic environments.
Speaker 3: It has invested over $2.5 billion US dollars in 2023 and has reached for the first time the $10 billion Canadian dollar mark in average assets.
It has invested over $2 5 billion U S dollars in 2023 and has reached for the first time, the 10 billion Canadian dollar Mark in average assets.
In the fourth quarter.
Speaker 3: Looking at next year, we are seeing positive momentum in deal flow and foresee double digit acid growth for 2024.
Looking at next year, we are seeing positive momentum in deal flow and foresee double digit asset growth for 2024.
Speaker 3: ABA Bank delivered a solid performance in 2023 with continued momentum in client acquisition.
A b a bank delivered a solid performance in 'twenty twenty-three with continued momentum in client acquisition.
Speaker 3: It was again recognized at the best bank in Cambodia by EuroMoney and Global Fighter.
It was again recognized as the best Bank in Cambodia by Euromoney and global Finance.
Speaker 3: In Q4, ABA generated double-digit growth in loans and deposits.
In Q4, a be a generated double digit growth in loans and deposits.
Speaker 3: Although revenues reflected continued margin pressure from the deposit.
Although revenues reflected continued margin pressure from the deposit mix.
Speaker 3: From a macro standpoint, the Cambodian economy continues to adjust to softer external demand and a slower recovery in tourism.
From a macro standpoint, the Cambodian economy continues to adjust to softer external demand and a slower recovery in tourism.
Speaker 3: In this context, we will remain focused on delivering balanced growth.
In this context, we will remain focused on delivering balanced growth.
Speaker 3: longer term, the outlook continues to be very attractive. Cambodia remains a high growth economy with favorable debit graphics, presenting substantial growth opportunity for ABA.
Longer term.
The outlook continues to be very attractive Cambodia remains a high growth economy with favorable demographics, presenting substantial growth opportunity for ABB.
As we enter 2024, we are committed to our prudent and disciplined approach to capital credit and cost management across our businesses.
Speaker 3: As we enter 2024, we are committed to our prudent and disciplined approach to capital, credit, and cost management across our business.
Speaker 3: our defensive positioning and the earnings power of our diversified business mix provides us with resilient and flexibility in a less constructive environment.
Our defensive positioning and the earnings power of our diversified business mix provides us with resilience and flexibility and are less constructive environment.
Speaker 3: This will enable us to continue to generate sustainable long term value for our shareholders.
This will enable us to continue to generate sustainable long term value for our shareholders by Sean over to you.
Thank you Donna and good morning, everyone.
Speaker 4: Thank you, Dahum, and good morning, everyone. My comments will begin on slide eight.
My comments will begin on slide eight.
Speaker 4: In fiscal 2023, the bank achieved record revenues of more than $10 billion underscoring our diversified and resilient business models.
In fiscal 2023, the bank achieved record revenues of more than $10 billion, underscoring, our diversified and resilient business model.
Speaker 4: Through strong execution, we generated solid growth and maintained an efficiency ratio below 53%. Turning to work.
Through strong execution, we generated solid growth and maintained an efficiency ratio below 53%.
Turning to our quarterly results on slide nine.
Speaker 4: The bank delivered a strong finish to the year, despite the macro environment that remained challenged.
The bank delivered a strong finish to the year, despite the macro environment that remains challenging.
Speaker 4: In Q4, revenues increased by 14% over year. And when combined with continued cost disciplines, PTPP grew by almost 19%.
In Q4 revenues increased by 14% year over year, and when combined with continued cost discipline P.
P T P P group by almost 19%.
Speaker 4: reported expenses in Q4, increased by 19% over year, and included the following specified items.
Reported expenses in Q4 increased by 19% year over year.
And included the following specified item.
Speaker 4: In their, in their meant losses of $86 million.
Infer impairment losses of $86 million.
Speaker 4: Litigation expenses up $35 million and provision for contracts of $15 million.
Litigation expenses up $35 million.
And provision for our contracts are $15 million.
Speaker 4: excluding specified items, expenses rose by 9% year-over.
Excluding specified items.
Spencers rose by 9% year over year.
Compensation was up.
Speaker 4: Compensation was up. This was primarily driven by variable compensation, which was in line with strong performance, as well as salaries, which mainly reflected the annual salary increase. We continue.
That's primarily driven by variable compensation, which was in line with strong performance as well as salaries, which mainly reflected the annual salary increase.
We continue to prudently manage head count.
Speaker 4: to descend. FTE count in Canada has declined by 1.6% since Q1.
Send FTE count in Canada has declined by one 6% since Q1.
Speaker 4: Technology costs were higher. This was mainly due to a shift in investment for folio mix, business growth, and amortization of prior year projects.
Technology costs were higher.
This was mainly due to a shift in investment portfolio mix business growth and amortization of prior year projects.
Speaker 4: Investments in technology allow us to improve the client experience in our efficiency by accelerating automation and simplifying our operation.
Investments in technology allow us to improve the client experience and our efficiency.
Accelerating automation and simplifying our operation.
Speaker 4: CAUSE, we're also higher year-over-year for occupancy, marketing and jobs.
Costs were also higher year over year for occupancy marketing and travel.
Speaker 4: As anticipated and mentioned on our last call, operating leverage was positive in Q4 at 4.3%.
As anticipated and mentioned on our last call.
Operating leverage was positive in Q4.
At four 3%.
Speaker 4: While positive operating leverage remains our objective, a slower revenue growth environment may make it difficult to achieve, especially in the first half of 2020.
While positive operating leverage remains our objective.
Lower revenue growth environment environment may make it difficult to achieve especially in the first I thought 'twenty 'twenty four.
Speaker 4: Similarly, we expect PTPP growth to be in the mid-single digit range and skewed towards the second half of the year.
Similarly, we expect P. T P P growth to be in the mid single digit range and skewed towards the second half of the year.
Speaker 4: in the current microenvironment. We continue to be strategic in prioritizing and managing expense.
In the current macro environment.
We continue to be strategic and prioritizing and managing expenses.
Speaker 4: We remain focused on controlling costs, as well as on balancing business growth and investments.
We remain focused on controlling costs as well as on balancing business growth and investments.
Speaker 4: As such, while expense growth may vary from quarter to quarter, we expect the trend to continue slowing down in 2024.
As such while expense growth may vary from quarter to quarter, we expect that trend to continue slowing down in 'twenty 'twenty four.
Yeah.
Now turning to slide 10.
Speaker 4: Non-trading net interest income in Q4 decline by $60 million or 1% sequin.
Non trading net interest income in Q4 declined by $16 million or 1% sequentially.
In P&C banking.
Speaker 4: in PNC banking, NII increased by $20 million, benefiting from growth in both loans and deposits.
NII increased by $20 million benefiting from growth in both loans and deposits.
Speaker 4: for financial market. Non-trading NII was down $11 million, re-flecting a payment recovery in corporate banking last quarter.
For financial market non trading NII was down $11 million, reflecting a benefit of payments recovery in corporate banking last quarter.
Speaker 4: And I was up $14 million at Critagy, benefiting from prepayment revenue and positive portfolio performance.
NII was up $14 million I credit G.
If it is from prepayment revenue.
<unk> portfolio performance.
Speaker 4: at ABA, NII was a five million on balance sheet growth partly offset by lower deposit Washington having worked Moscow 8 June , 2019.
Would they be a NII was up 5 million on.
On balance sheet growth, partly offset by lower deposit margin.
Speaker 4: Lastly, in the other segment, NII excluding trading declined by $39 million. This reflected in part strong performance from Treasury in the prior quarter, as well as an over NII from asset and liability management activities.
Lastly in the other segment NII, excluding trading declined by 38 $39 million.
This reflected in part strong performance from Treasury in the prior quarter as well as an older NII from asset and liability management activities.
Speaker 4: As anticipated, the all-vac non-trading them declined by four basis points sequentially.
As anticipated the all bank non trading NIM declined by four basis points sequentially.
Speaker 4: strong performance in our business segment, including two basis points expansion from PNC banking, was upset by lower NIA and the other segments.
Strong performance in our business segment.
Clothing, two basis point expansion from P&C banking was offset by lower NII in the other segment.
Speaker 4: Looking ahead, we expect the other segment total revenues for 2024 to be relatively stable from 2023.
Looking ahead.
We expect the other segment total revenues for 'twenty 'twenty four to be relatively stable from 'twenty to 'twenty three.
Speaker 4: We're pleased with our name expansion since the beginning of the rising rate cycle.
We're pleased with our NIM expansion since the beginning beginning of the rising rate cycle.
Going forward.
Speaker 4: There may be some quarterly fluctuations of a few basis points up or down, but overall, we expect the all bank non-trading name to be relatively stable, assuming no change in the Bank of Canada target rate.
There may be some quarterly fluctuations of a few basis points up or down.
But overall, we expect the all bank known trading NIM to be relatively stable, assuming no change in the bank of Canada target rate.
Yeah.
Speaker 4: Slide 11 highlights her balance sheets. Loans were up 9% year over year, and 3% quarter over quarter. Growth was broad base.
Slide 11 highlights our balance sheets.
Loans were up 9% year over year, and 3% quarter over quarter growth was broad based.
Speaker 4: Commercial loans grew 4% quarter of a quarter and part driven by opportunities in the residential insured segments.
Commercial loans grew 4% quarter over quarter in part driven by opportunities in the residential insurance segment.
Speaker 2: sequentially, personal loans grew by 1%.
When Chile personal loans grew by 1%.
Speaker 4: The POSIT, excluding wholesale funding, grew by 6% over year, and were relatively stable quarter of a quarter.
Deposits, excluding wholesale funding grew by 6% year over year and were relatively stable quarter over quarter.
Speaker 2: sequentially, personal deposits rose by 1.5% with continued growth in term deposits across our retail business.
Sequentially personal deposits rose by one 5% with continued growth drove in term deposits across our retail businesses.
Speaker 2: Non-retell deposits declined by 1% sequins.
Non retail deposits declined by 1% sequentially.
Speaker 2: As you can see on slide 12, we're starting 2024 from a robust liquidity position.
As you can see on slide 12, we're starting 'twenty 'twenty four from our robust liquidity position.
Speaker 4: Our liquidity coverage ratio was 155% and our net stable funding ratio was 118% at year end as we prudently and consistently operate at levels that are well above regulatory minimum requirements.
Our liquidity coverage ratio was 155% and our net stable funding ratio was 118% at yearend as we prudently and consistently operate at levels that are well above regulatory minimum requirements.
As ruled by Oscar recently.
Speaker 2: Cassi-TF will be reclassified as all cell deposits with a liquidity requirement of 100%.
Kashi Tee up will be reclassified as all sell deposit.
With the liquidity requirement of 100 per cent.
Speaker 2: This will be effective January 31, 2024.
This will be effective January 31, 'twenty 'twenty four.
Speaker 2: At year end, we held $13.6 billion of cash ETFs classified as non-retail deposits within financial markets.
At year end, we held $13.6 billion of Kashi T S.
Classified as non retail deposits.
In financial markets.
Speaker 2: Taking a step back, it's worth noting that this product serves the needs of our retail investors and also complement our open architecture model. As such, we will continue to support the product.
Taking a step back it's worth noting that this product serves the needs of our retail investors and also complement our open architecture model.
As such we will continue to support the product.
Yeah.
Speaker 4: While there will be an impact on our liquidity metrics, we're starting off with peer-leading ratios and have been preparing for this potential outcome.
Well, there will be an impact on our liquidity metrics.
Starting off with peer leading ratios.
In preparing for this potential outcome.
Speaker 2: Based on current assumption, we expect LCR at the end of Q1 to be around 140%.
Based on current assumptions, we expect LCR at the end of Q1 to be around 140%.
Speaker 2: We are well positioned to absorb the new regulatory liquidity treatment for cash ETF and will continue to be heading into the new year.
We are well positioned to absorb the new record oratory liquidity treatment for Kashi P F.
We will continue to be heading into the new year.
Speaker 2: As such, we do not expect changes to our term funding plan in 2024.
As such we do not expect changes to our term funding plan in 'twenty 'twenty four.
Speaker 2: Our core banking activities are well-funded, through diversified and resilient sources, while we remain disciplined around funding.
Our core banking activities are well funded through diversified and resilient sources, while we remain disciplined around funding costs.
Speaker 4: As always, our objective is to grow to franchise and we remain disciplined in managing our balance sheet, balancing growth, margin, and credit quality.
As always our objective is to grow the franchise and we remain disciplined in managing our balance sheet.
And gross margin and credit quality.
And now turning to capital on Slide 13.
Speaker 2: Our CT1 ratio stands at 13.5% unchanged from the previous quarter.
Our CET one ratio stands at 13, 5% unchanged from the previous quarter.
Speaker 2: Fort Quarter earnings, net of dividend, contributed 40 basis points to our ratio. Underscoring our strong internal capital generation capacity.
Fourth quarter earnings net of dividend contributed 40 basis points to our ratios underscoring our strong internal capital generation capacity.
Speaker 2: RWA growth represented 35 basis points of capital, primarily driven by solid growth in our commercial and corporate banking books, as well as rating migration from retail and non-retail portfolio.
Our W weight growth represented 35 basis points of capital, primarily driven by solid growth in our commercial and corporate banking books as.
As well as rating migration from retail and non retail portfolio.
Speaker 4: On November 1, 2023, the Basel 3 reforms related to the fundamental review of the trading book and the revised credit valuation adjustment framework were adopted.
On November 1st 2023.
The basal three reforms relate it to the fundamental review of their trading book and a revised credit valuation adjustment framework were adopted.
Speaker 4: This combined impact of these measures on the CT1 ratio as of November 1st falls within our previously announced range of 35 to 40 basis points.
This combined impact of these measures on the CET one ratio as of November 1st.
All within our previously announced range of 35 to 40 basis points.
Speaker 2: On a related note, we do not expect to hit the capital output floors in 2024.
On a related note, we do not expect to hit the capital output floors in 'twenty 'twenty four.
Our capital position is strong and will remain strong from the reform and implementation in Q1 'twenty 'twenty four.
Speaker 2: Our capital position is strong and will remain strong upon the reform implementation in Q1 2024.
Speaker 2: It provides us with flexibility to deploy capital across our business.
It provides us with flexibility to deploy capital across our businesses.
Speaker 4: It also allows us to return capital to shareholders through sustainable dividend increase.
It also allows us to return capital to shareholders through sustainable dividend increases.
Speaker 2: In conclusion, the bank delivered a solid performance in Q4 and in 2020.
In conclusion.
The bank delivered a solid performance in Q4 and in 'twenty to 'twenty three.
Speaker 2: strong execution is supported by a consistent and prudent approach across the bank.
Strong execution and supported by a consistent and prudent approach across the bank.
Speaker 2: As we enter 2024 with lingering macro uncertainty, our diversified business mix, our continued causes.
As we enter 'twenty 'twenty four with lingering macro uncertainty our diversified business mix, our continued cost discipline, and our strong capital and liquidity levels position us well to achieve our financial objectives.
Speaker 2: and our strong capital and liquidity levels position us well to achieve our financial objectives. I will now turn to
I will now turn the call over to Bill.
Speaker 3: You'll see Mary Shantal and good morning everyone. I'll start on slide 15, looking back at our credit performance over the full year.
Sean Tom and good morning, everyone.
I'll start on slide 15, looking back at our credit performance over the full year.
Speaker 3: Throughout 2023, the negative effects of higher interest rates, elevated inflation and geopliocal events impacted the Canadian economy and slowed growth.
Throughout 2023, the negative effects of higher interest rates elevated inflation and geopolitical events impacted the Canadian economy and slowed growth.
Speaker 3: unemployment rates rose, but remained close to historically low levels. And demographic trends provided support.
Unemployment rates rose, but remained close to historically low levels.
A graphic trends provided support to housing demand.
Speaker 3: against this macro context, the performance of our credit portfolios was strong, benefiting from our defensive positioning and disciplined risk management.
Against this macro context, the performance of our credit portfolios was strong benefiting from our defensive positioning and disciplined risk management.
Speaker 3: As expected, impaired PCL's rose from their 2022 trough to reach 11 basis points.
As expected impaired PCL rose from their 2022 trough to reach 11 basis points.
Speaker 3: This was at the low end of our target range and remained well below pre-pandemic levels.
This was at the low end of our target range and remained well below pre pandemic levels.
Speaker 3: We took eight bassist points of performing provisions as we prudently built additional allowance.
We took eight basis points of performing provisions as we prudently built additional allowances include.
Speaker 3: including POCI impacts or total PCLs for the full year, were 18 basis points.
Including P OCI impacts our total PCL for the full year were 18 basis points.
Speaker 3: Looking now at the fourth quarter, total provisions of $115 million or 21 basis points, were one basis point higher than last quarter. For the sixth consecutive quarter, we prudently built our performing allowances, taking nine basis points of performing BCL.
Looking now at the fourth quarter.
Total provisions of $115 million or 21 basis points or one basis point higher than last quarter.
For the sixth consecutive quarter, we prudently built are performing allowances, taking nine basis points of performing D. C. L.
Speaker 3: The primary drivers of performing provisions this quarter report fully a growth, migration, and model calibration.
Primary drivers are performing provisions this quarter were portfolio growth migration and model calibration.
Speaker 3: Provisions on impaired loans of $88 million or 16 basis points were also one basis point higher quarter of a quarter and Reflected the same trends we discussed on previous calls
Provisions on impaired loans of $88 million or 16 basis points were also one basis point higher quarter over quarter and reflected the same trends we discussed on previous calls.
Speaker 3: In her domestic retail portfolios, normalization continued towards pre-pandemic levels, led by credit cards.
Our domestic retail portfolios normalization continued towards pre pandemic levels led by credit cards.
Speaker 3: in our non-retail portfolios. In parrot provisions, we're taken on a few files, primarily in the wholesale trade and healthcare sector.
In our non retail portfolios impaired provisions were taken on a few files, primarily in the wholesale trade and health care sectors.
Speaker 3: In the USS and I segment, performance continue to meet our expectations.
In the U S S F and ice segment performance continued to meet our expectations.
Speaker 3: Pre-DG, normal seasoning of acquired portfolios generated an increase in state's tree provisions.
<unk> normal seasoning of acquired portfolios generated an increase in stage three provisions.
Speaker 3: at EBA, state three provisions to climb slightly quarter over quarter, but remained elevated as we expected.
Had a be a stage three provisions declined slightly quarter over quarter, but remained elevated as we expected.
Speaker 3: given the macro context in the Cambodian economy that L'Auron mentioned with soft direct journal demand and a slower recovery in tourism. We expect ABA's impaired provisions to remain elevated for several quarters.
Given the macro context in the Cambodian economy that al mentioned with softer external demand in a slower recovery in tourism, we expect aviation paired provisions to remain elevated for several quarters I should note here that a b as loans remain well collateralized with low ltvs and that net charge off rates remained low and below are prudent.
Speaker 5: I should note here that ABA's loans remain well collateralized with low LTVs and that net charge operates remain low and below our prudent level of impaired provisioning. Now,
Level of provisioning.
Now looking ahead next year.
Speaker 5: In 2024, we expect the impacts of higher borrowing costs to continue to work their way through the economy, leading to lower GDP growth and higher levels of unemployment.
In 'twenty 'twenty four we expect the impacts of higher borrowing costs to continue to work their way through the economy, leading to lower GDP growth and higher levels of unemployment.
Speaker 5: In our domestic portfolios, this should bring a return to pre-mademic levels of credit provisions with unsecured portfolios and retail banking and consumer discretionary sectors and wholesale banking, normalizing more quickly.
In our domestic portfolios. This should bring a return to pre pandemic levels of credit provisions with unsecured portfolios in retail banking and consumer discretionary sectors in wholesale banking normalizing more quickly.
Speaker 5: We expect provisions to be primarily driven by portfolio growth and make.
Credit G. We expect provisions to be primarily driven by portfolio growth and mix.
Speaker 5: At ABA, we expect provisions to remain elevated and that charge operates to remain low.
N D E. We expect provisions to remain elevated and that charge off rates to remain low.
Speaker 5: At the total bank level, our outlook for impaired PCLs in fiscal 2024 is a range between 15 to 25 basis points.
The total bank level, our outlook for impaired P. CLS in fiscal 'twenty 'twenty four is a range between 15 to 25 basis points. If current trends continue we should end up around the middle part of that range.
Speaker 5: current trends continue, we should end up around the middle part of that range.
Turning now to slide 16.
Speaker 5: With the additional build in the fourth quarter, our total allowance is screwed to almost $1.4 billion, representing 8.7 times coverage of our last 12 months net charge-off.
With the additional build in the fourth quarter. Our total allowances grew to almost $1.4 billion, representing eight seven times coverage of our last 12 months net charge offs.
Speaker 5: Our performing allowances grew 6% quarter over quarter to reach almost 1.1 billion dollars.
Our performing allowances grew 6% quarter over quarter to reach almost $1.1 billion.
Speaker 5: The performing ACL now exceeds the peak pandemic level and represents 4.4 times 2020 trees in paired DCL.
The performing ACL now exceeds the peak pandemic level and represents 4.4 times 2020 threes impaired PCL.
Speaker 5: In the Appendix FunSlide 32, we provide additional metrics about our allowances, and we remain very comfortable with the prudent level we built.
In the appendix on slide 32, we provide additional metrics about or allowances and we remain very comfortable with the prudent level we've built.
Turning to slide 17.
Speaker 5: Our gross and paired loan ratio rose four basis points sequentially and six basis points from the end of last year, driven largely by the USFF and I segment.
Our gross impaired loan ratio rose four basis points sequentially and six basis points from the end of last year, driven largely by the U S. S F and ice segment currency fluctuations accounted for almost a third of the sequential increase.
Speaker 5: Currency fluctuations accounted for almost a third of the sequential increase
Speaker 5: In our domestic segments, gross impaired loans were relatively stable at 31 basis points, rising only one basis point from last year.
In our domestic segments gross impaired loans were relatively stable at 31 basis points rising only one basis point from last year.
Speaker 5: Net formations increased to $172 million last quarter. In retail portfolios, the normalization trend continued, and our non-retail portfolio saw a few formations, primarily in agriculture and wholesale trade.
Net formations increased to $172 million last quarter.
In retail portfolios to normalization trend continued and our non retail portfolio saw a few formations primarily in agriculture and wholesale trade.
Speaker 5: Formations that CREDIGY were stable quarter over quarter and reflected the normal seasoning of acquired portfolios.
Information set credit G were stable quarter over quarter and reflected the normal seasoning of acquired portfolios.
Speaker 5: At ABA, formations remained elevated at $65 million, up $14 million in Canadian dollars.
At E. P. A formation has really remained elevated at $65 million up $14 million and Canadian dollars.
Speaker 5: On a constant currency basis, ABA's formations decreased by $6 million US dollars quarter over quarter.
On a constant currency basis, apa's formations decreased by 6 million U S dollars quarter over quarter.
Speaker 5: On slide 18, we present highlights from our Canadian Rezel Portfoli.
On slide 18, we present highlights from our Canadian rental portfolio.
Speaker 5: The Geografic and Product Mix remains stable with Quebec accounting for 55% and insured mortgages accounting for 29% of total result.
The geographic and product mix remained stable with Quebec, accounting for 55% and insured mortgages accounting for 29% of total Russell.
Speaker 5: Average LTVs for a HELOC and uninsured mortgages remained in the low to mid-50s and high-risk uninsured borers represented less than 50 basis points of total residence.
Average ltvs for our HELOC and uninsured mortgages remained in the low to mid fifties.
And high risk uninsured borrowers represented less than 50 basis points of total Russell.
Speaker 5: Additional details on our Canadian Mortgage Portfolio are presented on slide 19.
Additional details on our Canadian mortgage portfolio are presented on slide 19.
Speaker 5: About half of our mortgage portfolio has already been reprised to the higher interest rates we've seen over the past 12 months. And clients have continued to demonstrate their resilience.
About half of our mortgage portfolio has already been repriced to the higher interest rates, we've seen over the past 12 months and clients have continued to demonstrate their resilience.
Speaker 5: In both variable rate and fixed rate uninsured mortgages, early stage delinquency rates are normalizing but remain below pre-pandemic levels. And 90-day delinquency rates remain less than half a pre-pandemic level.
In both variable rate and fixed rate uninsured mortgages early stage delinquency rates are normalizing, but remain below pre pandemic levels and 90 day delinquency rates remain less than half of pre pandemic levels.
Speaker 5: As we discussed last quarter, early stage delinquencies on insured variable rate mortgages have increased at the fastest rate in the Resil portfolio, and we're seeing regional differences continue to emerge.
As we discussed last quarter early stage delinquencies uninsured variable rate mortgages have increased at the fastest rate in the rest of the portfolio and we're seeing regional differences continue to emerge.
Speaker 5: We provided the maturity profile of our fixed rate mortgages over the next three years.
We provided the maturity profile of our fixed rate mortgages over the next three years.
Speaker 5: We take comfort in the high percentage of insured, the overweight and Quebec, and the low LTV.
We take comfort in the high percentage of insured the overweight in Quebec, and the low ltvs.
Speaker 5: In the appendices you'll find further information on our loan portfolio and market address.
In the appendices, you'll find further information on our loan portfolio and market risks.
Speaker 5: In conclusion, we are pleased with the credit performance again this year and remain very comfortable with our defensive positioning, our resilient mechs and our prudent level of allowances.
In conclusion, we are pleased with our credit performance again, this year and remain very comfortable with our defensive positioning a resilient mix and our prudent level of allowances.
Speaker 6: And with that, I'll turn it back to the operator for the Q&A. Thank you. We will not take questions from the telephone lines. If you have a question and you are using a speaker phone, please lift your hand set before making your phone.
And with that I'll turn it back to the operator for the Q&A.
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Speaker 6: Hi, good afternoon.
Our first question is from many Grumman from Scotiabank. Please go ahead.
Hi, good afternoon, Marisa until U.
Speaker 7: You mentioned that the capital floor will not be binding in 2024, but based on the new disclosure, it looks like it might be an issue in 2025. I was wondering if you could comment on the outlook for 2025 when it comes to the capital floor.
You you mentioned that the capital floor will not be binding in 'twenty 'twenty four but based on the new disclosure it looks like it might be a an issue in 2025 was wondering if you could comment on the outlook for 2025, when it comes to the capital floor.
Speaker 2: Hi there, thank you for the question. So our base case today is not to have an impact before 2026, but as you know, there are many moving parts. But to this to date, many were comfortable with 2026 impact for the floor and definitely nothing in 2024.
Hi, there. Thank you for the question. So our base case today is not to have an impact before 'twenty 'twenty six but as you know there are many moving parts, but to this to date them anywhere we're comfortable with the 2026 a M.
Impact for the floor and definitely nothing in 'twenty 'twenty four.
Speaker 3: Thanks for that. And then second question, I think it's for LaRonde. Thank you for providing a little bit of guidance in terms of what to expect for financial markets with the tax changes. But I'm wondering if you could give us a little bit more detail in terms of sizing the impact in terms of dollars and what you expect that impact to be from the dividend tax change. Absolutely, but I'll pass the question to Etienne many.
Thanks for that and then the second question I think it's for Lauren. Thank you for providing a little bit of guidance in terms of what to expect for financial markets.
With the tax changes, but I'm wondering if you could give us a little bit more detail in terms of sizing the impact in terms of our dollars in and what are what do you expect that impact to be from the dividend tax change.
Absolutely, but I'll pass the question to John.
Many.
Speaker 8: Yeah, thanks for the question, many. So like Laurence said, our expectations is to achieve your over-year net income growth in financial markets in 2024. I think when you take a step back, what we've built over the years is a strong and diversified global markets franchise.
Yeah. Thanks for thanks for the question many are.
So like little said, our expectation is to achieve year over year net income growth and financial markets since 2024.
I think when you take a step back what we've built over the years as a strong and diversified global markets franchise.
Speaker 8: and our equity businesses in particular are client-focused domestic leaders and they're all performing very well. So I don't foresee any significant modification strategy or deployment because of this tax change. When you look at the amount...
In our equity businesses in particular, our client focused domestic leaders and they're all performing very well.
So I don't foresee any significant modification in strategy or deployment because of this tax change.
When you look at the amount of Canadian dividends, that's fluctuated over to yours based on market activity and client demand for for equity products on Canadian shares.
Speaker 8: That's fluctuating over the years based on market activity and client demand for equity products, on-canny insures. And the tax benefit we were receiving was incidental to those client businesses.
And the tax benefits, we were receiving was incidental to those five businesses.
Speaker 8: We also think a change like that will have other impacts on the markets that we think we are well positioned to exploit because of the nimble way that we deploy capital because we don't have silos between products and asset classes.
We also think a change like that we'll have other impacts on the markets that we think we are well positioned to exploit because of the nimble way that we deploy capital.
Because we don't have silos between products and asset classes.
So.
Speaker 8: We believe we'll see a lot of new business opportunities in the global capital markets in 2024. And like I said, our expectation is to achieve positive net income growth in financial markets.
We believe we will see a lot of new business opportunities in the global capital markets in 2024 and.
And like I said, our expectation is to achieve positive net income growth and financial markets.
Speaker 7: Maybe just to follow up on that, I mean, in the market, one way that people are looking at this issue is looking at the T number for you as 165 in Q4. Is that number going to change materially when these tax rolls get implemented?
Maybe just a follow up on that I mean in the market one way that people are looking at this issue is looking at the number for you was 165 in Q4.
Is that number going to change materially.
When these tax those get implemented.
Speaker 8: Yeah, that number will go down, although it will be less than that, less than half of that number will be impacted. Right.
Yeah that that number will go down although it will be less than that less than half of that number will be impacted.
Great. Thanks, so much.
Yeah.
Thank you.
Okay.
Speaker 6: Following question is from Nigel de Sousa from Veritas Investment Research.
Our following question is from Nigel D'souza from sandwiches investment research. Please go ahead.
Speaker 9: Thank you. Good morning. I wanted to follow up on the additional disclosure you had on your mortgage portfolio on slide 19. On the variable mortgage book, any color you could provide on the LPBs for that portfolio and what you're seeing in terms of the such as customers that are, I guess, under the most financial stress in terms of drawing the payment increases and then similar for the figures.
Oh, Thank you good morning.
Wanted to follow up on the additional disclosure you had on your mortgage portfolio on slide 19.
The variable mortgage book any color you can provide on the ltvs for that.
<unk> portfolio and what you're seeing in terms of the a subset of customers that are I guess under the whole financial stress in terms of absorbing the same increases in that similar effect.
Speaker 9: on and short that are separate renewal. I think you note that about 18% have an LTV above 70%. So any color there on what been to that would be is that all, is that hard, dominantly, mortgages originated after 2020?
To ensure that a separate renewal.
That about 18% have an LTV above.
70%, so any color there on what they thought would be is that all is that probably dominantly mortgages originated.
After 2020.
Speaker 5: Hi Nigel, it's Bill. I'll take that and start off. I think I captured most of your questions on the
Hi, Nigel it's bill I'll I'll take that to start off I think I captured most of your questions on the on the first part about our variable rate mortgages, you'll see in the top rather sharp we provide some additional some additional details and I think the takeaway from that is as you know our variable rate mortgage.
Speaker 5: On the first part about variable rate mortgages, you see in the top brothers chart we provide some additional details. And I think the takeaway from that is, as you know, our variable rate mortgage product, the monthly payment has changed every time the rates have changed.
Product.
The monthly payment has changed every time the the rates have changed.
Speaker 5: And so the, the borers have seen and absorbed the impact of those rates change. And we call out here on the, the slide, the average payment increase was around 65%.
And so the.
Borrowers have seen and absorbed the impact of those rates change when we call out here on the slide the average payment increase was around 65%.
Speaker 5: for the variable rate mortgages. And that methodology, it's a pretty simple methodology. We looked at from the very beginning of Q2, from the time that rates started to increase.
For the variable rate mortgages and.
That methodology, it's pretty simple methodologies, we looked at it from the very beginning of Q2 from the time that rates started to increase.
Speaker 5: And if it had been a customer that actually was originated in 2018 or 2019, we're not comparing that to the higher origination rate. We're actually looking from the trough to the current rate. So a little bit of conservatism and that. But what we're seeing with the impact is the clients have been able to absorb the effect of that.
And if it had been a customer that actually was originated in 2018 or 2019 were not too we're not comparing that to be a higher origination rate, we're actually looking from the trough to the to current rates. So.
A little bit of conservatism in that.
But what we're seeing with our the impact as the clients have been able to absorb the effect of that.
Speaker 5: You've seen, we've talked about the early stage delinquencies in variable rate mortgages, uninsured variable rate mortgages, have risen faster in the Rezl book than fixed rate. However, they remain below pre-pantemic levels and late stage delinquencies and those insured variable rates are well below pre-pantemic levels.
You you've seen and we've talked about the the early stage delinquencies in variable rate mortgages uninsured variable rate mortgages have risen faster than the rest of the book then and a fixed rate.
However, they remain below pre pandemic levels and late stage delinquencies in those insured variable rates are well below pre pandemic levels.
Speaker 5: In the insured variable rate mortgage space where clients had less of a down payment, the impact has been larger. And that is where we've seen the delinquency levels reach the pre-pandemic early stage of length so you reach the pre-pandemic levels and with some regional differences.
In the insured variable rate mortgage space, where clients had less of a down payment the impact has been larger.
And that is where we've seen the b delinquency levels reached the pre pandemic early stage delinquencies reached to pre pandemic levels and with some regional differences.
Speaker 4: Now step back to answer, I think the second part of your question. For those customers, we have outreach and we've got ability to clients up optionally from the equity that they have in their homes. And maybe Lucy, if you want to comment about how we work with those clients. Yes, thank you, Mia. So we've been, I would say, very proactive from the beginning and we continue to be.
Now stepped back to to answer I think the second part of your question for.
For those customers. We are we have outreach and we've got our ability to.
Clients have optionality from the equity that's a that they have in their homes and maybe Lucie if you want to comment about how we work with those clients you think you'll be on something we've been I would say very proactive from the beginning and we continue to be and with our customers that are renewing well ahead of their maturity dates.
Speaker 4: with our customers that are reviewing well ahead of their maturity dates.
Speaker 4: So what we get from reaction so far from the customers are very positive. And it ranges mostly from we are okay, we've managed, we've adjusted.
And so what we get from reaction so far from the customers are very positive and it raises and mostly it raises from we are okay with manage we've adjusted.
Speaker 10: And also to implementing a new system and ex-taving plan for them in the anticipation of what's coming forward in a year or two years from now. And from the customer spacing hardship, we've offered the adapted solutions that is the best suited depending on each and every customer financial situation. And those are the ones that we use normally in the normal course of business.
And also to implementing a new system, and it's saving and plan for them and in and then India.
The patient of what's coming forward in a year or two years from now and from the four new customers facing hardship. We've offered you adapt and citizens and that is the best to it depending on each and every customer financial situation and those aren't the ones that we use normally in.
In the normal course of business.
Speaker 5: And then maybe the close, I know your question on the fixed rate mortgages. So on the chart, you'll see at the bottom we've shown the maturity profile of the fixed rate mortgages. And you can see the percentage that are insured is very high. The percentage in Quebec is very high. And as you know, in Quebec, house prices have been lower, consumer leverage is lower, and there's more dual income families household.
And then maybe to close our Nigel you. Your question on the fixed rate mortgages. So on the chart, you'll see at the bottom we've shown the maturity profile of the fixed rate mortgages.
And you can see the percentage that are insured is very high the percentage in Quebec is very high and as you know in Quebec House prices have been lower consumer leverage is lower and there's more more dual income families are households, and so we were quite.
Speaker 5: And so we're quite comfortable and confident with the performance of the fixed rate mortgages when they come to Reno-A-L as well.
I'm comfortable and confident with the performance of the fixed rate mortgages, when they come to a renewal as well.
Speaker 9: Great. And just to minor follow up here, I think you touched on it, for the customers that do have equity in their home, are you seeing more action taken to sell properties and realize that equity in order to avoid stress on renewal? Any trends you could highlight on how other than prepayments, how our individuals were handling the up and middle of it.
Great.
My follow up here I think you touched on it before the call.
Customers that do have.
Equity in their home are you seeing more action taken to.
The south properties and realize that equity in order to avoid that.
It's all renewal any trends you could highlight how other than <unk>.
Prepayment how are individually.
Yeah.
Speaker 5: Maybe I'll start off and then let Lucy, but I think it's important to just repeat the
Maybe maybe I'll start off and then let Lucie, but I think it's a it's it's important to just repeat the the early even the early stage delinquencies late stage delinquencies. So impairments are well well below times that demonstrates the resilience and the consumers remember <unk>.
Speaker 5: The early, even the early stage delinquencies, the late stage delinquencies, so impairments are well, well below. That demonstrates the resilience in the consumers. Remember, incomes have also gone up. The liquidity is higher than pre-pandemic. So the impairments in late stage delinquencies are significantly below pre-pandemic levels and early stage delinquencies.
They have also gone up liquidity.
<unk> is higher than pre pandemic. So the impairments and late stage delinquencies are significantly below pre pandemic levels and early stage delinquencies even for the variable rate uninsured are below pre pandemic and they're well below pre pandemic for the fixed rate.
Speaker 10: Even for the variable rate, uninsured, are below pre-pandemic, and there will be low pre-pandemic for the fixed rate mortgages as well, but Lucy. Yeah, and specifically on what you pointed out, we've been looking at those trends from the beginning of the rate increases, and we have not seen any material increase in refinancing requests for more customers.
Mortgages and swap it Lucy yeah, and specifically on the once you pointed out too we've been looking at those trends from the beginning of the rate increases and we have not seen any material and increase in refinancing requests from our customers.
Okay I'll leave it there that's it for me thank you.
Speaker 6: Thank you for following question. Is from Doug Young from the Jordan Capital Market? Please go ahead.
Thank you.
The following question is from Doug Young from Desjardins Capital markets. Please go ahead.
Speaker 9: I, uh, good morning. I just, maybe on the set one ratio, I noticed the RWA impact was a little bigger than we would have anticipated. I think there's about 14 basis point negative impact from credit migrations. So I don't know if you can talk about.
Hi, Good morning, I, just maybe on the set one ratio I noticed E. R. W. A impact was a little bigger than we would have anticipated I think theres about 14 basis point negative impact from from credit migrations about I don't know if you can talk about.
Speaker 9: you know what's driving that? What are you seeing? Is that linked Vincent? In particular area with the new portfolio.
You know what's driving that what are you seeing is that linked in particular area within your portfolio.
Speaker 4: Hi, yeah, thanks for the question. It's Marichantal. When you look at the credit migration, I'd say that the mass proportion of it comes from annual reviews from our non-retail book mostly. So maybe three quarters of it and the rest from the retail book.
Hi, Yeah. Thanks for the question, it's Matt who shut down when you look at the credit migration I'd say that my proportion and that comes from annual reviews from our non retail book, mostly so maybe three quarters of it and the rest from there.
From the retail book.
Okay is this and this is typically an annual review that you do or is this like I'm trying to get a sense of what type of drag no I can kind of guess why do you think the organic growth will be the impact on the set one ratio and then trying to build in something for a negative migration is just an outsized quarter is done.
Speaker 9: Is this, and this is typically an annual review that you do? Or is this like, I'm trying to get a sense of what type of drag, you know, I can kind of guess what I think the organic growth will be, I impact on the set one ratio and then trying to build in something for negative migration. Is this the night size quarter? Is this something that you foresee? I got to build talked about the expected and paired PCL for fiscal 24. Just trying to get a sense if I wish to think of a negative impact on a set one ratio for me.
That you foresee.
Bill talked about the expected impaired PCL for fiscal 'twenty four it just trying to get a sense of how we should think of the negative impact on the set one ratio from migration sure. Doug I can I can't comment I think it's going to be difficult to have an exact number but just in context on the retail portfolio has.
Speaker 5: Sure Doug, I can comment. I think it's going to be difficult to have an exact number, but just in context on the retail portfolio as consumer behavior changes. So the messages, the linkancies are, and they're expected to continue to rise towards pre-pandemic levels. That by nature will drive migration on the retail portfolios that in the capital.
Behavior changes so.
The messages delinquencies are expected to continue to rise towards pre pandemic levels.
That by nature will drive migration on the retail portfolios and the capital for the.
Speaker 5: for the non-retail portfolio's macro outlook is driven by GDP growth in the economy as the interest rates increases work their way through the economy. So hard to predict the number, but as you can imagine in this context with a slowdown in GDP, there are the watch lists has increased.
Non retail portfolios the macro outlook.
It was driven by by GDP growth in the economy as the interest rates increases work their way through the economy, So hard to predict the number but as you as you can imagine in this there's context with a slowdown in GDP. There are the the watch list has increased.
Speaker 5: And we expect that there will be continued negative migration going into 2024, but very difficult to put a number on it. It depends on where interest rates and GDP growth is.
We expect that there'll be continued negative migration going into <unk>.
2024.
But it's very difficult to put a number on it it depends on where does that where interest rates and GDP growth is.
Speaker 5: In the context, one other comedy, guess I'd make.
It's Darren.
And in the context, one other comment I guess I'd make.
Speaker 5: When we think about a slow down and changes as consumers adjust to changes in interest rates, we would expect the first sectors to be hit would be around the consumer discretionary.
When we think about.
A slowdown.
And changes is as consumers adjust to changes in interest rates, we would expect the first sectors to be hit would be around the consumer discretionary and when you look at which sectors. Those are theyre pretty close to if you remember during the beginning of the pandemic the pandemic impacted sectors of consumer.
Speaker 5: And when you look at which factors those are, they're pretty close to, if you remember during the beginning of the pandemic, the pandemic impacted factors, the consumer discretionary. And and we were relatively underweight in those sectors. So let me give you some additional help guys.
Discretionary and we were relatively underweight.
Underweight in those sectors. So I can give you some additional help and guidance.
Okay.
Speaker 9: And then if I look at Canadian banking, pre-tax, pre-provisioner means, you know, I've got it being flat, you're a viewer, and it could be fair, you know, I don't do the annual adjustment says that you guys do, when you go back and kind of you take some big fences out of the divisions and throw them in corporate. So I'm just looking at it without that adjustment. And so I'm just trying to get a sense of, is there anything...
And then if I look at Canadian <unk>.
Banking pre tax pre provision earnings.
Got it being flat year over year and defer.
I don't do the annual adjustment that you guys do when you go back and kind of you take some of the expenses out of the mutations and throw them in corporate so I'm just looking at it.
That adjustment and so I'm just trying to get a sense of is there anything.
Speaker 9: In terms of unusual, this quarter from expenses, because it looked like the nymphrojectory was good, long growth was fine. Just trying to understand what some of the driver...
In terms of unusual this quarter from expenses because it looks like the NIM trajectory was good loan growth. That's fine just trying to understand what some of the.
The driver of that might've been.
Speaker 9: So just to be clear, you're looking at the PNC segment, right? Sorry, yes, the banking. Sorry, yeah. Yeah. I've a lot of things going around in my head right now. So yeah, that's correct. No problem.
So just to be clear youre looking at the P&C segment right sorry, yes.
The banking sorry.
Yeah, I mean, a lot of things going around in my head right now.
That's correct yeah no problem.
Speaker 4: Yeah, so inexpensive growth was coming broadly more from salary increase, as I mentioned, and increase in technology due to our investments in projects. I think that was my comment is also very applicable to PNC, but I don't know if you see, you want to give maybe just a bit more color on the segment. Yeah, thank you very much.
Yeah, so inexpensive.
Growth was coming and probably more from salary increase as I'm as I mentioned, then and increase in AR technology due to our investments and in projects I think that was and my comment is also very applicable to our P&C, but I don't know if you see you want.
Maybe just a little bit more color on the on the segment.
Got that.
Speaker 10: So in terms of expenses, IT and immortalization is really the...
So in terms of expenses.
T and amortization is really there yet.
Speaker 10: that say the most important increase. We've been very diligent in managing our headcount, but obviously higher compensation and employee benefit is also the second aspect of it, and obviously volume driven expenses.
Let's say the most important increase we've been very end.
Diligent in managing our head count.
But obviously higher compensation and employee benefits is also the second aspect of it and obviously volume driven expenses.
Speaker 10: that just follow the revenue growth. So basically...
Then just follow the yeah, they're both you and.
The revenue growth.
So basically this is what happened.
Does that answer your question.
Speaker 9: Yeah, no, I mean, I can follow. It's just, I'll follow up offline. I guess maybe just lastly.
Yeah, No I mean.
I can follow on was just off.
Follow up offline I guess, maybe just lastly.
Speaker 9: you know, on expenses in general. And, you know, national has been more of the bank that there's has never been a big difference between reported and cash. This quarter was very different. There's a number of different adjustments and laid them out in your step. Guess where my question is going. Is this an abnormal quarter? Are things changing?
On expenses in general and in National Pen more of the bank that has never been a big difference between reported and cash this quarter was very different there's a number of different adjustments you laid them out in Europe, and you said I guess, what my question is going is this an abnormal quarter are things changing and more specifically I don't see.
Speaker 9: And more specifically, I don't see a restructuring charge in here. And it sounds like the environment that you're expecting from a revenue perspective is going to get a little bit more top.
A restructuring charge in here and as you know it sounds like the environment that you're expecting from a revenue perspective, it's going to get a little bit more tough. This is their considerations to maybe making more drastic changes to rein in expense growth.
Speaker 9: Is there considerations to maybe making more drastic changes to rain than expense?
Speaker 4: So I can take a dad and give a little bit more color on the expense. So in terms of, we've been very clear last quarter, first of all, in terms of charge, that it's not something that we were considering. And as we're entering 2024, we still have them write the same mindset.
So I can I can take that and that in and then give them a little bit more color on the expense. So in terms of we've been clearly very clear last quarter first of all in terms of of.
The charge that it's not something that we were considering and that's we're entering 'twenty 'twenty four we still have them right does the same mindset. So we've been very proactive in managing expenses early in 2023, and this will continue in 'twenty 'twenty four.
Speaker 4: So we've been very proactive in managing expenses.
Speaker 4: early in 2023. And this will continue in 2024. Lucy mentioned we've been managing headcount and you saw on our slides.
Sure Adam.
Lucie mentioned, where we've been managing head count and you saw him on our slides and a decrease of one 6% since the beginning of the year. So that strategy will not change we will remain very focused and we're not expecting any charge them.
Speaker 4: a decrease of 1.6% since the beginning of the year.
Speaker 4: So that strategy will not change. We will remain very focused.
Speaker 4: and we're not expecting any charge next year.
Our next here that said, we did add some specified items that you've alluded to in our in this quarter that are very specific in terms of the impairment on intangibles that are mostly affecting on our P&C segment.
Speaker 4: That said, we did add some specified items that you've alluded to in this quarter that are very specific in terms of impairment on intangibles.
Speaker 2: that are mostly affecting RP&C segment.
So I think that those are very nonrecurrent items.
Speaker 4: So I think that those are very non-recurrent items that you won't be expecting in the next couple of quarters. And is there a saving?
Items that you.
You won't be expecting in the next couple of quarters.
There's no savings like is there.
Speaker 4: Yeah. Savings that you're anticipating out of that, have you quantified that? Yeah, yeah. There will be savings coming out of those impairment losses. So you can expect a total bank non-interest expenses to reduce by or approximately half a percent next year coming out of those specified items.
Yeah, Pavings that youre anticipating out of that would you quantify that.
Yeah, Yeah, yeah, there will be savings coming out of those impairment losses. So you can expect the total bank non interest expenses to reduce by approximately half a percent.
Next year come in are coming out of those specified items.
Okay.
Speaker 4: And they're mostly attributable to the PNC segment.
Mostly and they're mostly attributable to the P&C segment.
Thank you.
Thank you.
Speaker 6: Following questions from Mario Mandonka from TD Securities, please go ahead.
The following question, you're somewhere human Delta from TD Securities. Please go ahead.
Speaker 11: That's in there just a couple of quick questions. Last quarter you highlighted that the Fundamentary to Trading Book would reduce the C21 by 35 to 40. Is that still guidance we can rely on? It is still the guidance that we mention in our remarks. Yeah. Okay. The other thing.
Just a couple of quick questions last quarter, you highlighted that the fundamental review the trading book would reduce this each one by 35 to 40 is that still guidance, we can rely on it.
It is still the guidance that we that we mentioned in our remarks, yeah. Okay. The other thing.
Speaker 9: Like I understand your point about the change in Canadian tax, the taxation of Canadian dividends. I understand that what you're offering is here. Could you help me understand how that gets reflected in the income statement? Is it just in the form of higher taxes or will we see revenue impacted? Can you help me understand that?
I understand your point about the change in Canadian tax the taxation of Canadian dividends I understand that.
What you're offering here could you help me understand how that gets reflected in the income statement is it just in the form of higher taxes or will we see revenue impacted.
So help me understand that.
And yes. So if you look at the proposed dividend tax measure on them on this solely basis.
Speaker 4: Yes, so if you look at the proposed dividend tax measure on a solely basis, it will definitely have an impact on our effective tax rate.
It will definitely have an impact on our effective tax rate.
Speaker 9: So yes, you can expect an increase on the effective tax rate for next year. But then again, as it's mentioned, going forward for the financial market business, we still do expect net income increase in 2024. On a total bank basis, what are we looking at? A hundred basis points or so? Or is there anything you can offer to help us think that through?
And so yes, you can expect an increase on the effective tax rate for next year, but then again as it's been mentioned going forward for the financial markets business. We still do expect net income increase in 2020 four.
But on a total bank basis, what are we looking at 100 basis points or so or is there anything you can offer would help us think that through.
Speaker 8: I don't know. It's not a number that we can give, because tax rate will increase, but the business makes and financial market will compensate some of that. And then Mario, which is here, and when you consider how dynamically we allocate capital across opportunities is difficult to compare.
I don't mind, you, it's not it's not a number that you we can guess cause where the tax rate will increase but the business the business makes and financial market well will well compensated some of that and then Mario which sits in when you consider how a dime.
That makes Lee we allocate capital across a portrait ease is difficult to compare.
Speaker 8: from year to year and do everything being equal because we'll be allocating maybe different.
From year to year end due oh everything.
Everything being equal because we'll we'll be allocating maybe differently.
Speaker 9: Okay, so the tax rate moves up a little bit, but how about just the trading number? Is the trading number going to be impacted by this at all?
Okay. So the tax rate moves up a little bit, but how about just the trading number as it is the trading number going to be impacted by this at all.
Speaker 8: Well, all else being equal, it would be impact to marginally down on the equity side, yes.
Well all else being equal it would be impacted marginally down on the equity side, yes.
Thank you very much for sure.
Speaker 6: Thank you. A following question is from Mike Riz Ranovic from KBW Research. Please go ahead.
Thank you.
<unk> question is from Mike Arnold.
Vik from K K BW research. Please go ahead.
Speaker 12: Right it says, I appliances forgot to do it again
Hi, Good afternoon, I wanted to ask about E. B, a bank and so specifically when I look back at previous downturns, just going back to the GSC not to suggest that that's ahead of us now.
Speaker 12: And so, specifically, when I look back at previous downturns, just going back to the GFC, not to suggest that that's ahead of us now.
Speaker 12: But there were a couple of years where ABA banks, based on the regulatory data that I've seen, actually lost money. I think it was 2000, 2010, cracking if I'm wrong. Back then it was a much smaller loan portfolio relative to the Cambodian economy. It's a lot bigger now. And when I look at the recent trends, what's really catching my eye is that you're non-performing loan.
But there were a couple of years, where a be a bank. They saw the regulatory data that I've seen them actually lost money I think it was 2000 9000 and correct me if I'm wrong tie back then it was a much smaller loan portfolio relative to the Cambodian economy, it's a lot bigger than that.
And when I look at the recent trends, what's really catching my eye is that your nonperforming loans as a percentage of your loans in a be a bank has basically quadrupled over about seven or eight quarters.
Speaker 12: as a percentage of your loans in ABA bank has basically quadrupled over about seven or eight quarters.
Speaker 12: It had been running below 1% and now it's at 3.5% and so it makes me wonder how you could grow your loans here by 23% year over year and still have a positive view on, you know, expanding that balance sheet when it does seem like you're getting a little bit more stress points here. And by no means am I an expert in Cambodia, so correct me if I'm seeing things incorrectly here but it does seem like there's some...
It had been running below 1% and now it's at three and a half and so it makes me wonder how you could grow your loans here by 23% year over year and still have a positive view on expanding that balance sheet. When when it does seem like you're getting a little bit more stress points here and by no means of my expert in Cambodia. So.
Correct me, if I'm seeing things and correct me here, but it does seem like there's some.
Speaker 12: potential risk here on whether it's the tourism dynamic coming off a bit. And I think a construction boom that's been pretty healthy starting to come off here. So I'd love to get some more on that. Why don't you risk here? Why you're able to continue with this rapid pace ago?
Potential risk here on whether it's the tourism dynamic coming off a bit and I think the construction boom that's been pretty healthy.
Come off here, so I'd love to get some more color on that why you don't see riskier why you're able to continue with this rapid pace of growth.
Uh huh.
Speaker 5: Thanks, Mike. It's Bill. I'll start off in maybe Stephen, well, as some addition. So I think just on your first point, back in 2008, 2009, completely different bank ownership business models. So I wouldn't take, I wouldn't look for any insights from that, that old old data. Very, very, very different.
Thanks, Mike It's Bill I'll start off and maybe Stefan will have some addition, so I think just on your first point.
Back in 2008, 2000, and I'm completely different bank ownership business model, So I wouldn't take it.
Wouldn't look for any insights from that that old old data I'm very very very very different.
Speaker 5: And then on the current, the growth in the gross and paired loans, there were two parts of the history on that over the last few years. And if you remember as we were coming out of the pandemic,
And then on the the current the growth in the the gross impaired loans.
There are two parts of the of the history on that over the last few years and if you remember as we were coming out of the pandemic.
Speaker 5: in Canada, the pandemic moratorium.
The in in Canada, the Moratory pandemic moratoriums and did much earlier than the moratoriums ended in a in Cambodia, and we we called that out in 2022 that we expected as the Moratoria moratoriums that it would be would have if he can formations.
Speaker 5: ended much earlier than the moratoriums ended in Cambodia. And we called that out in 2022 that we expected as the moratoriums ended. We would have a peak.
Speaker 5: formations towards the end of 22. And that did play out. And the performance was pretty close to what we had expected through that.
Towards the end of 'twenty, two and that did play out and in the performance was pretty close to what we had expected a true that.
Speaker 5: And going into 2023 in the second and third quarter, what we spoke about was the context, the drivers were different of gross and paired loans.
And going into 2023 in the second and third quarter, where we spoke about was the context.
The drivers were different up gross impaired loans.
Speaker 5: In that the macroeconomic situation to change with the recovery in tourism not being a strong, soft-direct journal demand, impacting the Cambodia economy. So that was driving and that's what we've been speaking about the growth in impaired loans through 2023.
And that the macroeconomic situation to change with the.
The recovery in tourism, not being as strong softer external demand.
That's impacting the a b and Cambodian economy, so that was driving and that's what we've been speaking about the gross the growth and compared loans through 2023.
Speaker 5: We did call out last quarter and this quarter as well. We expect the impaired loans and formations to remain elevated. However, at a macro context.
We did a call out last quarter and this quarter as well, we expect to be impaired loans informations to remain elevated however at a macro context.
Speaker 5: difficult to predict over the next 12 to 24 months. As you'll see, it's expressed in the bond markets and there is some optimism that there will be a very soft landing and when we speak about external demand for the Cambodian economy, you're thinking US exports, exports to Europe . So...
Difficult to predict over the next the next 12 months to 24 months as you'll see as expressed in the bond markets and.
There is some optimism that there'll be a very soft landing and when we speak about external demand.
For the Canadian Cambodian economy, you're thinking U S. A.
Exports exports to Europe, so depending on your optimism on R&D.
Speaker 5: depending on your optimism on the macro picture, that would impact the speed of the recovery in Cambodia.
The macro picture.
That would impact the speed of the recovery in our in Cambodia.
Speaker 5: The second point that I'll make is that different than Canada, the impaired loans stay on the books longer. So the process of going through the process to end resolution is not as quick as it is in Canada.
The second point that I'll make is that different than than Canada.
The impaired loans.
Stay on the books longer so the process of going through the the.
The process to end resolution is not as quick as it is in Canada. So the that's why we expect our formations Davina remain elevated the gross impaired loans don't exit as quickly. So the gross impaired loans will will.
Speaker 5: So it's why we expect formations to remain elevated. The gross impaired loans don't exit as quickly. So the gross impaired loans will continue. We expect them to continue to grow.
To continue we expect them to continue to grow you'll see that in the numbers that we report there is quite a significant foreign exchange impact as well so in constant dollars. The growth was not as high I think foreign exchange as I mentioned with some but almost a third of quarter over quarter impact.
Speaker 5: You'll see that in the numbers that we report, there is quite a significant foreign exchange impact as well. So on constant dollars, the growth was not as high. I think foreign exchange, as I mentioned, but almost a third of quarter of a quarter impact.
Speaker 5: And then the last thing I'll point you to, which I think is helpful, is on slide 32 where we get more details of...
And then the last thing I'll point, a point you too, which I think is helpful is on slide 32, where we give more details of our our allowances and you'll.
Speaker 5: our allowances and you'll see on the bottom left we've provided additional disclosure. This was already in the SFI but we just condensed it for you so you can see it more clearly.
You'll see on the bottom left we've provided additional disclosure this was already in the SFA, but we just condensed it.
For you. So you can see a see it more clearly.
We have wanted to be quite prudent in our provisioning and allowances and a b a because we haven't been through many cycles.
Speaker 5: We have wanted to be quite prudent in our provisioning and allowances in ABA because we haven't been through many cycles. And we were the, so the uncertainty level is higher and therefore management overlays are higher. And what you can see from that bottom left table on slide 32 is, from the beginning of IFRS 9.
And we would be so the uncertainty level is higher and therefore management overlays are higher than what you can see from the bottom left table on slide 32 is from the beginning of I FRS nine we have very prudently built performing a provision so you'll see from 2019 and 2018.
Speaker 5: We have very prudently built performing provisions. So you'll see from 2019, 2018 as well, had a significant build in performing allowances. You can also see on, on.
As well had a had a significant build in performing allowances.
You can also see on them.
On slide 32 at the bottom that net.
Speaker 5: net charge operates have remained low and that's really driven by the fact that the book is is very secured, 98% secured with low LTVs. We've talked about mid-Portisol TV so even though the loans remain in that impaired category for a long time, in the end when they came out that charge off the actual losses have been very...
Net charge off rates have remained low and that's really driven by the fact that the book is.
Secured 98% are secured with low ltvs, we've talked about in it.
40th Ltvs, so even though the loans remain in that impaired category for a long time in the end when they came out the charge offs. The actual losses have been very very low.
Speaker 5: And in my prepared remarks, the commentators, we expect the charge of rates to remain low.
And in my prepared remarks, I commented that we expect the charge off rates to remain.
To remain low.
Speaker 5: And you can also see the prudency in our impaired PCLs that are significantly above the...
And you can also see the prudency in our impaired PCL that are significantly above the charge off rate. So that was long winded, but I hope it answered part of your question and I'll hand, it over to Stephane I'll be very quick Mike just to say as well you know if you go back to our book over the years. It started very much in our retail trade environment has such was it the nature.
Speaker 13: Charge Upgrade. So that was long winded. I hope that answer part of your question. I'll hand it over to Stephanie. I'll be very quick. Mike, just to say as well, if you go back to our book over the years, it started very much in a retail trade environment as such was the nature of the Cambodian economy. It has evolved substantially. Light manufacturing has grown agriculture. So if you look at our top seven industries in the portfolio, they account for about 87% of the books.
The Cambodian economy. It has evolved substantially like manufacturing has grown agriculture. So if you look at our top seven industries in our portfolio. They account for about 87% of the book I mean, there. It is very diversified and actually on a year and a year over basis, you know the industries that have grown the most are industries that coupon dwindle.
Speaker 13: I mean, it's very diversified and actually on a year-to-year basis, you know, the industries that have grown the most.
Speaker 13: are industries that keep on doing well, manufacturing, wholesale, trade, agriculture, and so forth. And last quarter where East Asia has had issues and much less so in Cambodia has been construction and real estate and we actually reduced exposure in construction last quarter.
Manufacturing wholesale trail agriculture, and so forth and last quarter, where east Asia has had issues and much less so in Cambodia has been construction and real estate and we actually reduced exposure and construction last quarter.
Speaker 12: Okay, that is extremely helpful for both of you. Thank you very much for that. Just one very quick follow up. So should investors care about the level of leverage in the Cambodia economy? So if you just take the banking sector assets as a percentage of GDP, is that something that should be of concern? Just given how it's trended.
Okay that that is extremely helpful for them for both of you. Thank you very much that just one very quick follow up so should investors care about the level of leverage and the Cambodia, Colombia. So if you just take the banking sector assets as a percentage of GDP is that something that should be.
Of concern just given how it's trended.
Speaker 13: I don't think so, honestly. We've seen the liquidity of individual consumers reduced over the last year, reflecting, you know, a bit of some leverage in the industry, but certainly, you know, the ability that we've shown and raising deposits and loans on both sides showed there's still, you know, interesting opportunities. And you've only got 13% of Cambodians actually have credit for silly.
I don't think so honestly, we've seen the liquidity of individual consumers reduced over the last year, reflecting as you know.
Some some leverage in the in the industry, but certainly you know the ability.
That we've shown in raising deposits and loans on both sides. So there's still you know interesting opportunities and you've only got 13% of Cambodians actually have credit facilities. So we've got the ability to pick and choose our clients are well within that.
Speaker 13: So we've got the ability of picking shoes or clients well within that market. I wouldn't talk for the other banks, but in our case, it's not something we're seeing now and the low LTV at 40% shows it.
Market I wouldn't talk for the other banks, but.
In our case, it's not something we're seeing now and the low LTV at 40% shows that.
Okay. Thank you for the color I appreciate it.
Thank you.
Speaker 6: The following question is from Lamar Persaud, some Comra security.
The following question is from Tomorrow Prasad from <unk> Securities. Please go ahead.
Speaker 13: Thanks, this is probably for Mary Chantelle. Still above the minimum LCR ratio, despite the change in treatment for cash ETF products. And you mentioned it doesn't change your term funding approach now. Does that current term funding approach already include building back the LCR to the, I guess, kind of 145 to 150 range? We saw through it 2023. Or should we assume you're comfortable in the 140 range?
Uh Huh, that's probably for a mere shoretel are still above the minimum LCR ratio. Despite the change in treatment for Kashi ETF products and you mentioned it doesn't it doesn't change your near term funding approach now does that current term funding approach already include building back you'll see are to that.
I guess kind of a $1 45 to $1 50 range. We saw throughout 2023 or should we assume you're comfortable in the are in the $1 40 range.
Speaker 4: No, we're comfortable. Second portion of your question, we're comfortable at the 140 range. Target to have peer-leading LCR, comfortably above regulatory requirements and we're heading into the new year with 140 is arranged with which we're comfortable with.
I'm nowhere it comes to the second portion of your question were comfortable at that 140 range, we always target to have them peer, leading LCR and comfortably above regulatory requirements and we're heading into the new year with 148 is a range.
We are comfortable with.
Speaker 13: Okay, and then, like, what is a scenario where you guys would...
Okay and then.
Like what what is the scenario, where you guys would.
Speaker 13: feel like there's a need to move back into the kind of 145 to 150 range. Like what's that scenario look like? Where you want to move back into that.
Feel like there's a need to move back into the kind of $1 45 to one 150 range.
What is that scenario look like.
Do you want to move back into that.
Yeah.
Speaker 4: Well, it's actually not a scenario we're considering at the moment. As I said, we're very comfortable with the 140. I don't see something that would pressure us to be at the higher level than that.
Well, it's actually not a scenario we're considering at the moment as I said, we're very comfortable with what with the 140 I don't see it.
Something that would that would pressure us too to be at that high level higher level than that.
Speaker 13: So it wouldn't be like if there was a more hard landing situation that you would feel like you would need at that time to build it back up into a 145 to 150 range. That's just not a reasonable assumption. You feel like the 140 is good enough in regardless of what happens. Is that fair?
So it wouldn't be like if there was a more hard landing situation that you would feel like you would need at that time to to build it back up until 145 to 150 range. That's that's just not a reasonable assumption do you feel like the 140 is good enough and regardless of what happens is that is that fair.
Speaker 4: Well, it's good enough at the moment what we know. So if something changes materially, we'll certainly will be flexible in that job. But we're at the moment we're very comfortable with 140.
Well it is good enough at the moment, what we know so if something changes materially we'll will certainly will well be flexible and agile, but at the moment, we're very comfortable with the 140.
Okay. Okay. That's it for me just a really quick one Patrick.
Speaker 13: Okay, that's it for me. Just a really quick one. Thank you. Thank you, Nirmar.
Hi, Mike.
Thank you.
Speaker 6: The following question is from Darko Milak. From RBC, Captain Milak, peace, go ahead.
<unk> question is from Darko <unk> from RBC.
Please go ahead.
Speaker 13: Hi, thank you. I appreciate we're running up against time here. So I'll try and be very quick. My questions are all aimed at Tien. You've got a lot coming at you next year from LCR to FRKB to dividend. And even at some point, there was an earlier we alluded to, this role to be heavy capital of corporate lending going forward. And so while I appreciate that in that income, you're hoping you had a.
Yeah.
Hi, Thank you.
And I appreciate we're running up against time here, so I'll try it.
I'll try and be very quick my questions are all aimed at CN.
You've got a lot coming at you next year from LCR to F. R. A T V to dividend.
Even at some point.
And alluding earlier, we alluded to this relatively heavy capital of corporate lending going forward and so while I appreciate that net income.
Youre, hoping to get it to grow next year.
Speaker 13: The question I have is more a strategic one actually. And I think of it as like when I look at your supplemental.
The question I have is more.
Our strategic one actually and.
I think of it as like when I look at your supplemental.
Speaker 12: You know, essentially we had 20% growth in average, I think.
Essentially we had 20% growth in average assets.
Speaker 12: Thank you for all for looking at that versus last year. You've had a lot of growth in corporate loans.
In Q4, when I look at that versus last year, and you've got a lot of growth in corporate loans.
Speaker 12: And the question of TN is, is when you're managing for an acceptable return in this business, with all of these things changing, why is it that there aren't going to be some strategic changes to your business model in 2024 and 2025, or are there you're just not sharing them?
And the question of Tien as when you're managing for an acceptable return in this business with all of these things changing.
Why is it that there aren't going to be some strategic changes to your business model in 2024, and 2025 or are there you're just not sharing them right now.
Speaker 8: Thanks for the questions, Darko. These are some great observations. And you're right that there are some
Thanks for the questions are called these are some great observations.
And you're right that there are some.
Speaker 8: There are some movements over time in average assets, in balance sheet. I think what you see there is a function of our capital allocation model where we're very nimble and allocating to the best opportunities. And that often means moving rapidly, not only from different asset classes, but also from types of trades. So for example,
There are some movements oh overtime and in the average assets and.
Our balance sheet.
I think with what you see there is a is a function of our capital allocation model, where we're very nimble in allocating to the best opportunities and that often means moving rapidly not only from different asset classes, but also from types of trade. So for example.
Speaker 8: what you often see in that movement, if you go from a securities for securities trade to a cash for securities trade, that would show up as an increase.
What you often see.
And that movement. If you go from a securities for Securities trade to a cash for securities trade that would show up as an increase in securities and balance sheet.
Speaker 8: in securities and balance sheet, even though the risk profiles are pretty much the same. So we like to move dynamically across these five-source trades to capture the best spreads. This is really a line with our strategy of leveraging our expertise in liquid short-term, figured funding trade. Like,
Even though the risk profiles are pretty much the same so we like to move dynamically across these types of trades to capture the best spreads. This is really aligned with our strategy of <unk>.
Leveraging our expertise and liquid short term secured funding trade.
Overall, if we take a step back and think about the outlook.
Speaker 8: If we take a step back and think about the ultimate.
Speaker 8: We're really cautiously optimistic on this year's outlook. And like LaLaLancet, and I said previously targeting positive net income growth for 2024. I think there's a lot to like in the current setup with the softening of the aukish tone from Global Central Banks.
We're really cautiously optimistic on this year's outlook and like I said and I said previously targeting positive net income growth for 2024, I think theres a lot to like in the current setup with the softening of the orchestra stone from global Central banks.
And you could see a big tailwind there for our markets and client activity.
Speaker 8: You could see a big tailwind there for markets and client activity. In particular, retail structure products could really benefit from the creases in rates and inequity rally.
In particular retail structure products could really benefit from decreases in rates and then equity rally.
Speaker 8: And on the array side, we expect activities continue to be elevated in the coming months. I mean, the volatility in the race has brought a lot of hedging to the forefront of our clients for our release. So that pipeline continues to look good.
And on the rate side, we expect activity to continue to be elevated in the coming months I mean, the volatility in rates has brought.
A lot of hedging to the forefront of our clients' priority. So that pipeline continues to look good.
Speaker 8: The governance that side we expect the domestic supply to continue rising as borrowers increase their program
And the governments that side, we expect domestic supply to continue rising as borrowers increase their programs.
Speaker 8: And on the investment banking side, we continue to like our MNP pipeline and its well-diversified across sectors. And there's a lot of the right powder on the sideline right now. And we see many well-capitalized firms potentially seeking growth through actualization.
And on the investment banking side, we continue to like our M&A pipeline, and it's well diversified across sectors and theres a lot of dry powder.
On the sideline right now and we see we see many well capitalized firms potentially seeking growth through acquisition.
Speaker 8: So, and you mentioned credit, the portfolio credit remains sounds over the last few quarters. We've seen a material increase drawing.
So and and you you mentioned credit to portfolio credit.
Sounds good.
Over the last few quarters, we've seen a material increase drawings.
Speaker 8: and they will likely remain high and that's driven with many factors including unfavorable capital markets conditions. But we really see a ramp up in corporate debt activity in 2024. There's a big maturity wall spike that's coming. And another potential tailwind would be a reopening of the equity markets. It could get really busy really fast in ECM. There's lots of cash on the sidelines.
And they will likely remain higher and that's driven with.
Many factors, including on favorable capital markets conditions, but we really see a ramp up in corporate debt activity in 2024, and there was a big maturity wall Spike that's coming.
And then another potential tailwind would be a reopening of the equity markets. It could get really busy really fast and you see them, there's lots of cash on the sidelines.
Speaker 8: So yeah, I think we feel good about the outlook and our confidence, there is strategy of being agile and allocating capital dynamically towards the best opportunities is still the right one. Okay.
So we I think we feel good about the outlook and are confident that our strategy of being agile and allocating capital dynamic lead towards the best opportunities is still the right one.
Okay, great. Thank you very much for that.
Thank you.
Speaker 6: Once again, please press star 1 at this time for any questions or comments.
Once again, please press star one at this time for any questions or comments.
Speaker 6: Following question is from Sorab Moverheadi. From BMO Capital Markets.
The following question is from Sohrab <unk> from BMO capital markets. Please go ahead.
Speaker 14: Okay, thank you. I just wanted to clarify, I think something, Mary Shantal, you said it in your prepare for months. I just wanted to try her, did probably.
Okay. Thank you I just wanted to clarify something.
You said it in your prepared remarks, I just wanted to make sure I heard it properly.
Speaker 14: When we look at the corporate or the slash corporate other segment, I think you provided some commentary as to what you would likely expect the performance of that segment.
And when we look at the.
The corporate or the slash corporate and other segment I think you provided some commentary as to what you would likely expect.
The performance of that segment to be.
Speaker 14: Next year, I wasn't sure if you said it would be more or less the same sort of a
Next year I wasn't sure. If you said it would be more or less the same sorts of things.
Speaker 4: that income drag that it was this year or if it would be less or more. Can you just please clarify? Yeah. So what I said, Sarah, thank you. It was going to be relatively stable from 2023. So flat.
Net income drag that it was this year or.
So it would be less or more can you just please clarify.
So what I said, sorry, Rob. Thank you it was going to be relatively stable from 'twenty to 'twenty three so flat.
Speaker 4: And I guess you're saying that both on whether it's on a reported or on a good of an adjusted basis. There's a small difference given some of the stuff. But basically you're saying 2023 was around $270 million, let's say split the difference. Drag and it should be around that sort of a level next year. Yes, and the guidance, Sir, I'm just to make sure it was on the revenue line. What about the next...
And and and.
And I guess, you're saying that both whether it's on a reported or on a bit of an adjusted basis. There's a small difference given some of the stuff.
So you are saying 2023 was around $270 million, let's say split the difference yeah drag and it should be around that sort of a level next year, yes, and in the guidance. So Rob just to make sure. It was on the revenue line.
What about the net income what about the after tax line.
Speaker 4: In terms of aftertacks, maybe the one aspect that I could maybe be more precise is the impact of variable compensation that could be different year over year because of the it's in the other segments. So it's hard to tell at this point of time.
D. R. D F N terms of after tax and maybe the one aspect that I could maybe need more precise is D. M. D. N fact of a variable compensation that could be different year over year.
Because of the its and its in the other segments. So it's tough to tell at this point in time, but it could vary up or down but mostly what we're guiding on is the revenue a portion of the other segment that is gonna be stable year over year.
Speaker 4: in time but it could vary up or down but mostly what we're guiding on is the revenue portion of the other segment that's going to be stable year or year.
Speaker 14: And maybe just Bill, I can take this offline, but if it's got a quick answer, I think earlier you and I think you see that you tacked team fairly comprehensive on the explanation of consumer behavior.
Okay, and then maybe just add bill I can take this offline, but if it's got a quick answer I think our near you and yeah. I think you can see that you tack team a fairly comprehensive explanation of consumer behavior.
Speaker 14: when it comes to re-fi activity and renewals and so on and so forth. I just wanted to get a sense, is that consistent across the country? Or would you say there are regional differences in that consumer view?
When it comes to refi.
Refi activity and renewals and so on and so forth.
I just wanted to get a sense is that consistent across the country or would you say there are regional differences in that consumer behavior.
Speaker 5: Thanks. And happy to take us. Have an offline call with you, Sir. I have, because my answers haven't been very short today. So I'll start off. When I called out the regional differences, I called it in a couple of places, it's the rate of normalization that we've seen in retail, in Resolenda and the Unsecured and that the...
Thanks.
Happy to take us.
All flying car with your syrup, because my answers haven't been very short today.
[laughter] I'll I'll start off when I called out the regional differences of the call.
I'll do it in a couple of places it's the it's the rate of normalization that we've seen in our in retail and reservoir, Linda and the unsecured and that the the has.
Speaker 5: as we expected, given the resilience of the Quebec economy, the levels of leverage.
As we expected given the resilience of the Quebec economy, the lower levels of leverage the normalization back to pre pandemic delinquencies has been slower in Quebec, then outside Quebec.
Speaker 5: The normalization back to pre-pandemic delinquencies has been slower and quicker than outside quicker back.
Speaker 5: So that's what I was referring to in terms of, maybe I added to the tag team again, lose CNI in terms of consumer behavior on ReFY.
So that's what I was that's what I was referring to in terms of maybe I'll hand, It will tag team again, Lou C&I in terms of consumer behavior on refi.
Speaker 10: But just overall in terms of consumer behavior, I think what's interesting is that it's really an important resilience of the consumer because when we look at the behavior, facing inflation, really paying higher debt loan, you can see that because the, if you say, for example, the non-amortizing, he, the balances are decreasing.
Just overall in terms of consumer behavior I I think what we're saying is there's really no.
An important resilience of the consumer because when we don't get the behavior.
You know facing inflation really paying a higher death alone you can see that because the let's say for example, the none of them are tiny thing he though the balances on decreasing.
Speaker 10: Lines of credit, the balances are decreasing, the lines are also decreasing.
Your line of credit and the balances on decreasing the lines aren't also decreasing.
Speaker 10: And on credit cards when you look at the ports, slowly you grow.
And on credit cards, when we look at the portfolio growth are the revolving balances are not growing at the same pace. They are lagging and we still see elevated payments across the board and also the utilization rate is below pre pandemic.
Speaker 10: The revolving balances are not going at the same pace. They're lagging and we still see elevated payments across the board and also the utilization rate is below pre-pandemic.
Speaker 10: And we see how so if I can give you more color because we look a lot at the at the spend
And we see how so if I can give you more color because we looked a lot at least.
Spend.
Speaker 10: Obviously on credit card and 233 was record years in terms of span, but Q of a Q In Q4 we see an important acceleration in purchase volume Which is the biggest I've seen in many years. So we see a consumer that is adjusting Definitely and and and again, I think it's it just shows up the original you see of the consumer right now
Obviously on credit card and then 2023 it was record years in terms of spend but cumulative Q in Q4, we see an important deceleration in in purchase volume.
Which is the biggest I've seen in many years. So we see a consumer that is adjusting.
Definitely and and and again I think it just shows the resiliency of the after.
The consumer right now.
Speaker 14: And Lucy, just for Christophe clarity, you're saying that consumer, whether it's sitting in Western Canada, Tobacco or Ontario, you're not thinking of distinct behavior in that consumer behavior. It would be relatively uniform across.
And we see just for Crystal clarity youre, saying that consumer whether it's sitting in western Canada, tobacco, Ontario, Youre not seeing a distinct behavior in that consumer behavior, it would be relatively uniform across the country.
Speaker 14: Yes, but let's see, our credit card portfolio, about 85% of it is in Quebec. So I would really skewed my answer to the Quebec population. And as I really want to make sure that we have enough volume to be statistically good and to enter those trends, you should see what I mean. Yeah, I understand. Thank you very much for that. Thanks for squeezing me, and I know you've kind of...
Yes, but [laughter] alright, lets say our credit card portfolio about 85% of it is in Quebec. So I wouldn't really she was my answer into two other quick to the Quebec population as I really wanted to make sure that we have enough volume to be spent at least that's our stickney good into into them.
Trends that you see what I mean I understand thank you very much and thanks for squeezing me in I know you've kind of overtime.
Speaker 6: Thank you. We have no further questions, register at this time. I would not like to turn the meeting back over to Mr. Fins.
Thank you.
We have no further questions registered at this time I would now like to turn the meeting back over to Mr. Fan.
Speaker 3: Thank you operator and I'd like to take the opportunity to thank all the analysts covering us, shareholders, clients, employees for your continued support and I'd like to wish you everyone a happy holidays.
Thank you operator, I'd like to take the opportunity to thank all the analysts covering us our shareholders clients and employees for your continued support and I'd like to wish you everyone a happy holidays.
Thank you.
Speaker 6: The conference has now ended. Please disconnect your lines at this time, and we thank you for your participation.
The conference has now ended please.
Please disconnect your lines at this time and we thank you for your participation.
Yeah.
Yeah.