Canada’s biggest banks have rallied very nicely since March lows. Many of these banks are at or near their pre-pandemic levels, rallying on expectations that the pandemic will not have hurt consumer credit quality as much as expected. For Canada’s largest banks with diversified business models including strong businesses outside of consumer lending (such as wealth management, etc.), these effects are likely to be even more muted.
Yes, debt levels are at or near all-time highs across the board. Both consumers and businesses have used these low interest rate levels to tack on more debt at a time when many are overly bullish in the stock market. However, if interest rates do remain this low, the idea that debt servicing levels have actually improved could help buoy financials stocks such as those of the Canadian banks.
Of course, risks do exist, and lending levels do provide cause for concern among investors. That said, Canada’s banks are among the best-capitalized in the world, and provide a level of safety and defensiveness those of other countries don’t provide right now. I think there is a strong argument Canada’s banks represent tremendous value at these levels, particularly if one believes most banks have over-provisioned for credit losses, and most of this money will come back to these banks’ bottom lines once the pandemic wraps up.
We’re a ways away from that happening, however, I like the yields these banks provide as well, and think there could be tremendous value here today for long-term value investors.
Invest wisely, my friends.