Bank commercial loan growth barely keeping up with inflation over the past 5 years

There are times when a local newspaper beats me to a story in a space that we’ve focused on here over the years, and today is one of those days. According to some of our bank CEOs, business loan growth is going to be tough in 2014. It has been many months since I checked in on the status of Canada’s commercial and corporate loan market (see prior post “Canadian banks doing their job as Commercial lending rises 12% in a year” June 22-13), and it was the wrong time to be snoozing.

Volumes have become stagnant, and future commercial loan growth may be much weaker than what we’ve seen of late, as reported by the Globe’s Tim Kiladze yesterday.

I’ve updated our running tally, in the format you’ve seen since we started to ranks these figures in 2009 – which are reported by the Bank of Canada as “Business loans to Canadian residents for business purposes”:

December 2008: $191.563 billion
January 2009: $185.679 billion
February: $183.759 billion
March: $184.089 billion
April: $181.811 billion
May: $178.691 billion
June: $176.365 billion
July: $174.664 billion
August: $173.818 billion
September: $171.152 billion
October: $171.091 billion
November: $168.425 billion
December: $169.430 billion

January 2010: $167.892 billion
February: $168.104 billion
March: $169.495 billion
April: $169.163 billion
May: $166.378 billion
June: $165.369 billion
July: $166.988 billion
August: $164.774 billion
September: $163.976 billion
October: $168.401 billion
November: $168.892 billion
December: $169.170 billion

January 2011: $170.42 billion
February: $171.800 billion
March: $174.028 billion
April: $175.198 billion
May: $173.974 billion
June: $176.527 billion
July: $177.574 billion
August: $177.654 billion
September: $176.856 billion
October: $178.214 billion
November: $176.705 billion
December: $180.526 billion

January 2012: $180.5 billion
February: $182.7 billion
March: $185.3 billion
April: $188.0 billion
May: $186.6 billion
June: $187.9 billion
July: $190.9 billion
August: $192.6 billion
September: $195.0 billion
October: $197.2 billion
November: $198.1 billion
December: $201.5 billion

January 2013: $200.9 billion
February: $204.8 billion
March: $209.1 billion
April: $210.0 billion
May: $209.2 billion
June: $212.5 billion
July: $216.6 billion
August: $215.3 billion
September: $217.8 billion
October: $218.7 billion
November: $219.5 billion
December: $221.3 billion

January 2014: $218.0 billion

The market has definitely gone flat between September 2013 and January 2104. Mind you, the quantum of outstanding loans had risen an impressive 13.5% between July 2012 and July 2013, which is perhaps why the current 8.5% annual growth rate telegraphs a cooling market.

This isn’t the first flat period the market has experienced following the global financial crisis. There was no material commercial loan growth between June and September 2011, either. But expansion of the bank books continued at that point, which have grown 23.6% in aggregate from the previous “flat” growth period.

It wasn’t that long ago that loan books were contracting, as was the case as late as September 2010. Long after the financial crisis had subsided and the stock market had recovered most of its losses. The S&P 500 had gone from 1516 to a low of 677, back to 1146 at that point, and yet Canada’s banks were still withdrawing capital from the commercial and corporate loan space. Or corporate CFOs had continued their deleveraging effort, depending on the storyline you prefer.

There are two takeaways from the new data: domestic lending has risen 32.9% since the nadir of September 2010. Yahoo! Or, the domestic bank loan book has grown just 13.8% in total over the past five years: which works out to an average of ~2.8% per annum. Something around the annual inflation rate. Yuck!

The former speaks to how much capital was withdrawn from the marketplace, post-crisis. The latter reminds us just how anemic our economy is, and how poorly served Canadian entrepreneurs are by the defacto moratorium — 20 years and counting — on new chartered bank licences for commercially-focused lenders.

MRM
(disclosure: we own bank shares in our household)