It is a fact that the Canadian banking system is extremely stable, which is due to the way lending is done in Canade. First, the Canadian banks have a strong track record of being careful lenders: they only do lend to people who can demonstrate a capacity to repay their loans and especially with regards to mortgages. Canadian banks require that the borrower makes a down payment of typically 20% during a house purchase, and they will be very strict with amortization periods. Second the mortgages are government-backed, meaning that if borrowers cannot repay their loans, the government will step in to make the payments which makes a huge difference for the banks in terms of credit risk. Last but not least Canadian banks are authorized by the government to take big margins on all the products and services to their customers. Similar fee practices would be criticized by most governments but they are encouraged by the both Canadian government and finance regulatory body. And you bet that the Canadian banks use this opportunity to increase their revenues in terms of crisis and build up their treasury. All this regulated by the Canadian Bank Act which is a very good regulation: both strict and pragmatic for the business.
The conclusion we draw from this is very clear: Canadian banks, are low-risk money machines with good returns to investors. They are exactly what bank should be.
How to buy shares from Canadian banks? First, the stocks of the five major Canadian banks are traded in the New-York Stock Exchange:
- Bank of Nova Scotia (NYSE:BNS)
- Royal Bank of Canada (NYSE:RBC)
- Toronto-Dominion Bank (NYSE:TD)
- Bank of Montreal (NYSE:BMO)
- Canadian Imperial Bank of Commerce (NYSE:CM)
Or if you have a limited capital to invest we recommend that you subscribe to the Exchange Traded Fund from Blackrock: iShares S&P/TSX Capped Financial Index Fund traded on the Toronto Stock Exchange (ticker TSX:XFN):
To learn more about exchange-traded-funds follow the link HERE.