Investor concerns about capital requirements are starting to edge into the question of how well banks are profiting off higher interest rates, said Scotiabank analyst Meny Grauman, which has been the main focus in recent quarters.
“There is no doubt that the market’s almost singular focus on margins has already begun to weaken as capital concerns have taken some of that spotlight away,” he said in a note.“A more challenging capital and regulatory environment for banks … is something that we are very concerned about.” The higher capital requirements come after the banking regulator increased the amount of capital that banks have to set aside, while the two taxation measures the federal government introduced in last year’s budget will also be reflected in the results.
Banks had until Feb. 1 to get their capital ratio to the new level of 11.5 per cent set by the Office of the Superintendent of Financial Institutions, which raised it by half a percentage point over concerns of higher risk from high household debt and rising interest rates.With the economy looking strong despite a wave of interest rate hikes, concerns the Bank of Canada won’t be able to lower rates any time soon could add to the risks.