The Big Five cuts your COVID-19 risk

Article Excerpt

Due to the COVID-19 crisis, the Bank of Canada has cut its benchmark lending rate to just 0.25%. That will certainly hurt the interest income that Canada’s Big Five banks earn on their loans. The pandemic will also dampen demand for new loans, at least until the economy returns to normal. As well, the sharp spike in unemployment will lead to higher loan writeoffs. However, Ottawa’s move to provide direct financial assistance to businesses and individuals should help offset the likely uptick in loan losses. The drop in stock prices will impact the banks’ increasingly important wealth management operations. But profits at these operations will rebound with the economy. Despite these concerns, we still like the long-term prospects for investors in all five banks. As they were during the 2008-2009 financial crisis, these institutions are prepared to handle the current shock. The pandemic will also drive more of their clients to bank online, which will cut their operating costs and support future…

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