The chief executive of Canada’s biggest bank said Wednesday the country’s top priority during the coronavirus crisis should be protecting jobs and keeping companies from going bankrupt, as it will help enable a quicker economic recovery.
Royal Bank of Canada CEO Dave McKay cautioned the crisis will drive the economy into a recession, although the exact extent of the damage remains hard to predict at the moment.
“But our national priority must be to help companies remain solvent and people employed,” McKay said during the Toronto-based bank’s virtual annual shareholder meeting. “We need to move with urgency, in days and weeks, not months. This will keep our economy primed, and help speed up the recovery once the health crisis is in check.”
Tens of billions of dollars in support for consumers and businesses is being rolled out by the federal government, such as its $71-billion wage-subsidy program and the $2,000-a-month Canada Emergency Response Benefit. At the behest of the federal government, the banks have also offered cash-strapped customers lower credit card interest rates and the ability to defer mortgage payments for up to six months, among other things. RBC has processed more than 250,000 loan-payment deferrals, McKay said Wednesday.
However, companies and people were already finding themselves increasingly unable to pay their debts even before the coronavirus crisis struck Canada. The total number of insolvencies rose by 2.1 per cent month-over-month and nine per cent year-over-year in February, according to the Office of the Superintendent of Bankruptcy.
Again, that was before the coronavirus was formally declared a pandemic and before the wheels really fell off global oil prices, two developments that have prompted the closure of non-essential businesses and a massive number of layoffs. The coronavirus and the oil shock have also left Canada’s big banks facing the prospect of a sudden rise in loan defaults, as consumers and businesses may have lost the means to pay off their debts.
There are expectations now of more insolvencies and layoffs going forward, with the Canadian Federation of Independent Business warning Wednesday that a recent survey found 63 per cent of company owners planned to cut full-time staff levels in the near future and that 58 per cent said their firms were in bad shape. CFIB has warned relief for businesses has been slow to arrive and that too much has been in the form of deferrals and loans, creating concerns about what happens after the crisis.
McKay suggested there must also be thought given to what happens after the immediate rescue plans, as he predicted global trade and travel are unlikely to immediately return to the pre-crisis status quo.
“For a country like Canada, we need to think about how to be more self-reliant in the areas that matter most to our competitiveness and prosperity,” McKay said. “This includes creating more resilient Canadian supply chains, using technology to work and connect differently with stakeholders and transforming the way we learn and train, so our companies and communities are better equipped for a new paradigm of disruption.”
Financial Post
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