FISCAL 2022 OUTLOOK
Expectation for a continued Canadian economic recovery Despite periodic set-backs driven by ongoing waves of COVID-19 and public health restrictions to curb rising infection rates, the Canadian economy has recovered significantly over the last year, and is expected to continue along a path of gradual recovery in 2022. Gross domestic product (GDP) is forecast to continue to trend upwards in 2022, with a strong start to the year supported by high levels of consumer spending, followed by a tapering in the latter half of the year as pent-up consumer demand subsides and government support programs conclude. The labour market is expected to continue to strengthen, with unemployment rates forecast to decline through the year. Our expectation of a continued economic recovery in 2022 assumes no further significant public health restrictions implemented across Canada in response to future waves of COVID-19. Considerable uncertainty remains regarding the strength, speed and sustainability of the economic recovery currently underway and the ultimate impact it will have on businesses and consumers. Supply chain disruptions, higher energy and commodity prices, and difficulty in attracting and retaining labour have disrupted the economic recovery for certain industries, and may impact production costs and timing. The impact on the economy and our borrowers of the conclusion of government support programs also remains uncertain and could cause variability in our financial results outside of our current expectations.
The potential for sustained levels of high inflation driven by supply chain disruptions has led the Bank of Canada to signal an end to its quantitative easing program, which has fueled an expectation for policy interest rate increases in 2022, however the timing and magnitude remains uncertain.
Outlook of expected financial performance
Looking ahead to fiscal 2022, we will leverage our enhanced capabilities to support strategic execution through the expected continued recovery of the Canadian economy and expect to deliver:
Metric
Fiscal 2022 expectations – Annual percentage growth
Loan growth
Double-digit
Branch-raised deposits growth
Double-digit
Pre-tax, pre-provision income growth
Mid- to high- single-digit
Diluted earnings per common share growth
Low- to mid- single-digit
Continued strategic execution has positioned us to capture increased market share within a larger addressable market and take advantage of growth opportunities as the Canadian economic recovery unfolds. In fiscal 2022, we expect our teams to continue to deliver strong full-service client growth in strategically targeted segments and within our risk appetite. We expect to deliver double-digit annual percentage loan growth, where prudent. We will target further geographic and industry diversification through growth of client relationships across our national footprint and expect strong loan growth in Ontario as we continue to leverage our Mississauga banking centre and further expand our presence with the opening of our Markham location in fiscal 2022. We expect strong double-digit annual percentage growth of branch-raised deposits as we continue to take a phased approach to extend our digital capabilities to a broader client base, starting with personal and small business customers and progressing to include all commercial clients. Very strong growth of new branch-raised deposits is expected to be partially offset by run-of f as our client’s cash reserves are gradually put to work as government support programs conclude and companies ramp up spending in line with the economic recovery. We also expect continued diversification of funding sources to include strong contributions from our capital market and securitization channels. Bank of Canada policy interest rate increases have a positive influence on our net interest margin, with the overall impact dependant on the magnitude and timing of rate increases, as well as strategic deposit pricing changes, where the benefits to net interest margin are balanced against retention and growth of lower cost branch-raised deposits. Based on the assumption of either no policy interest rate increases or a rate increase that occurs later in the fiscal year, we expect annual percentage revenue growth to just reach double-digits, with a relatively consistent net interest margin compared to fiscal 2021. If policy interest rate increases commence in the first half of the fiscal year, revenue growth could be in the low double-digits, with net interest margin two to four basis points higher than fiscal 2021. On an annual basis, we expect non-interest expense percentage growth in the low-teens. Non-interest expenses in fiscal 2022 will include continued investment in our strategic priorities, which includes certain one-time expenses to implement enhancements to our AIRB tools and processes identified during our parallel run, and expenses related to the development and roll-out of our enhanced digital offering to clients. We also expect growth in certain expenses, such as business development and travel, as we return a more normal operating environment, while maintaining strict adherence to public health restrictions at all times.
Based on projected growth in revenues and expenses, we expect to deliver annual pre-tax, pre-provision income growth within a range of mid- to high- single-digits.
We recognized an unusually low provision for credit losses of nine basis points as a percentage of total loans in fiscal 2021, below our normal historical range of 18 to 23 basis points, which we believe is not sustainable for a prolonged period. Through the ongoing economic recovery and as government support programs conclude, we expect our provision for credit losses on total loans as a percentage of average loans to increase to the mid-teens in basis points. Annual percentage growth of diluted earnings per common share is expected to range between low- to mid- single-digits. Policy interest rate increases that occur earlier in fiscal 2022 and a provision for credit losses that remains consistent with 2021 levels would lead to more robust earnings growth. A provision for credit losses in fiscal 2022 within our normal historical range of 18 to 23 basis points could result in a decline in earnings compared to the prior year. We expect to continue to use our ATM program to issue common shares to support strong loan growth and to ensure our capital levels appropriately reflect the potential for near-term volatility described above. Following the conclusion of the OSFI moratorium on dividend increases in November 2021, we expect to resume our historical pattern of moderate and regular increases to our common share dividend.
24 | CWB Financial Group 2021 Annual Report
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