Canada prepares for the Great Depression
Canada's six largest banks have set aside money to cover losses.
Expecting more Canadians to be unable to repay loans and credit card debts as the country heads toward a potential recession, Canada's six largest banks have set aside a significant amount to cover possible losses.
"Unfortunately some people can not repay loans that they have taken out. This happens regularly but it tends to spike when we go into recession and people lose their major source of income, such as their employment or small business income," said Lawrence Booth, professor of finance at the University of Toronto's Rotman School of Management.
Also known in Canada's banking system as provisions for credit losses, or PCLs, the CAN$ 2,4 billion in provisions were reported in the first quarter by six of Canada's largest banks: Royal Bank of Canada, TD Bank, Scotiabank, BMO, CIBC, and National Bank.
That indicates a significant increase from the CAN$ 373 million the six banks set aside for loan loss reserves a year ago, in the first quarter of 2022. Around the same time in March 2022, the Bank of Canada began its attempt to curb inflation by raising interest rates to 4.5%, the highest level since 2007.
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