Canadian Western Bank’s diversification pays off as oil field continues to struggle
The Canadian Western Bank is reaping the rewards of going beyond its roots in the country’s ailing oil center.
CEO Chris Fowler is starting to see the fruits of years of transforming Canadian Western from an Alberta-focused commercial lender into a more geographically diverse full-service bank targeting business owners. The Edmonton-based bank’s first-quarter profits exceeded analysts’ estimates, aided by loan growth in Ontario and profits from businesses the bank has been striving to increase, such as wealth management.
“We have very strong businesses in Ontario, where we see good opportunities for continued growth and the opportunity for us to cross-sell in digital banking and wealth management,” Fowler said in an interview.
The company’s results for the three months to January, announced last week, gave the company’s shares their biggest gain in six months. The stock is up 17 percent this year, the best performance in the S & P / TSX commercial bank index.
As the bank opened its first branch in Ontario late last year, much of the diversification has come from acquisitions that have strengthened its offerings in Canada’s largest province, including rental companies in Canada. equipment and wealth manager iA Investment Counsel. Canadian Western held 31 percent of its loan portfolio in Alberta at the end of the first fiscal quarter, up from 48 percent in October 2010. Ontario now accounts for 24 percent of the loan portfolio, up from 9 percent. The bank’s second largest market, British Columbia, was stable at around one-third.
This brings the bank within reach of the goal it set itself about four years ago of having Alberta, British Columbia and Ontario each account for about 30 per cent of the loan portfolio. Canadian Western. The company generated 14 percent loan growth in Ontario last quarter, compared to 5 percent in Alberta and 4 percent in British Columbia.
Alberta’s petroleum-based economy has been hit by two significant price declines in the past decade. The first began in 2014, about a year after Fowler became CEO, when OPEC increased production to combat the U.S. shale industry. Crude had not fully recovered from that drop when the pandemic again hammered prices last year.
The shocks reduced investment in new projects and caused continued layoffs of workers in energy companies. The province’s unemployment rate was 10.7% in January, topping the national figure of 9.4%.
The industry could experience a somewhat weaker recovery than after previous declines as limited pipeline capacity restricts local crude prices and production, Fowler said.
“Oil and gas will not be the same engine it once was,” said Fowler, who noted that less than 1% of his bank’s loans are for direct oil and gas production. “I don’t think we’ll see a lot of growth investment in terms of increased capacity added to production,” he said, referring to capital spending.
Deposits in branch
Beyond geographic diversification, Canadian Western has also gotten a boost by reducing its reliance on higher cost brokerage deposits and shifting more to branch deposits where it pays less interest. high. This strategy widened the net interest margin – the difference between what the bank earns on loans and what it pays on deposits – a key measure of profitability.
CIBC Capital Markets analyst Paul Holden raised Canadian Western shares to the equivalent of a buy last week after its net interest margin exceeded expectations for the second consecutive quarter, and in because of the outlook that an improving economy will support lending growth.
“We believe management’s guidance is cautious and that the change in the funding mix could lead to further expansion of the net interest margin,” Holden said in a note last week.
Canadian Western is focused on sustaining growth with tools to attract new business customers fully online, following the rollout of digital integration for personal banking customers last year. The bank also plans to roll out a cash management tool for small and medium-sized businesses in the second half of this year that will integrate with their accounting software and help them manage debts, receivables, inventory and payroll. .
“We are a growth-oriented bank and our goal is to find more customers and grow our business by targeting business owners as our primary market,” said Fowler. “We are spending a lot of time and effort to make sure we can be that full-service bank for our customers.”