Executives brace for economic and political shifts
As concerns over mortgage risks begin to wane, Canada’s top bank executives are turning their attention to growing uncertainty surrounding political developments and potential trade tariffs, particularly in light of recent geopolitical shifts.
During a conference hosted by RBC Capital Markets on Tuesday, Royal Bank of Canada (RBC) CEO Dave McKay highlighted the potential economic repercussions of the US imposing a 25% tariff on Canadian and Mexican imports. This policy, proposed by incoming US President Donald Trump, is raising alarm across industries.
“I think the tariffs can do a lot of damage,” McKay stated. “It’s disappointing to hear the rhetoric intensify, when we thought it was de-intensifying or mitigating to an extent.”
Other bank leaders echoed these concerns. Victor Dodig, CEO of CIBC, emphasized the importance of cross-border collaboration, expressing optimism that policymakers would recognize the economic integration between the US and Canada.
“I’m sure that sensible minds will prevail in terms of looking at the integrated nature of our economy, and how do we move things forward for the benefit of American consumers and companies and Canadian consumers and companies,” Dodig said, suggesting Canada should focus on strengthening internal trade agreements to navigate the challenges.
Domestic political shifts add to uncertainty
Adding to these economic concerns, political instability in Canada has created a pause for investors, a report from The Canadian Press highlighted. Prime Minister Justin Trudeau announced Monday his resignation and the suspension of Parliament until March 24, sparking questions about the upcoming Liberal leadership race and its impact on the 2025 election.
BMO CEO Darryl White noted the potential consequences of this uncertainty. “What do people do when they’re uncertain? They wait... that waiting that is a natural consequence of uncertainty, is starting I think to set in a little bit in Canada,” White said.
In the US, meanwhile, questions remain about the impact of the new Trump administration on the economy – but spending has nonetheless increased.
“Set aside the drama, there’s clearly a pro-growth agenda that people are signing up for,” White said.
Easing mortgage concerns
While political and trade risks dominate discussions, the Canadian mortgage market is providing some relief. Banks are seeing a decline in the risks associated with mortgage renewals, thanks to recent interest rate cuts by the Bank of Canada.
The central bank has reduced its key interest rate to 3.25%, with further cuts expected. RBC’s McKay noted that 60% of its mortgage holders could renew at lower rates, easing financial pressure for many borrowers.
“When we look at the overall payment shocks, it’s decompressed significantly,” McKay said, referring to the adjustments required as borrowers moved from pandemic-era low rates to higher ones.
Similarly, TD Bank’s chief operating officer Raymond Chun, set to take over as CEO in April, observed increased mortgage activity in late 2024. “Certainly we saw a noticeable pick up in Q4 in sales and mortgage volumes inside of TD and as an industry at large,” Chun said, adding that a third of upcoming renewals are expected to benefit from lower rates.
Do you have something to say about this story? Share your thoughts in the comments below.
