Canadian banks are expected to post 10-15% sequential increases in impaired loans across sectors this quarter, compared to a 4% rise in impaired loans from the large U.S. banks, according to a report from Goldman Sachs analyst Heather Wolf. The increase is due to illiquid secondary markets for telecom assets, to which Canadian banks have a greater proportional exposure than U.S. banks. The increase among U.S. banks would have most likely been up to 14% if they had not been able to sell distressed loans from sectors other than telecom into the secondary markets. A banker commented the Canadian banks tried to penetrate the U.S. market through the syndicated loan business and offered lines to the telecom names. Although some Canadian banks, particularly Bank of Nova Scotia, have been able to capitalize on improved liquidity in the secondary market for highly collateralized credits, liquidity has remained tight for credits with few hard assets, especially telecom, according to the report. An official at Royal Bank of Canada, however, said that RBC has a strong emphasis towards investment grade exposure and believes lumping together all the Canadian banks is incorrect. A banker at CIBC World Markets also noted that U.S. banks are in the same position. Spokespersons for RBC, CIBC and Toronto Dominion declined to comment on the analysts' report. Spokespersons for Bank of Nova Scotia and Bank of Montreal did not return calls.
Canadian Banks Struggle To Offload Telecom Debt