As bad debts soar, Canadian banks eye asset sales to boost capital

investing.com:

By Nivedita Balu

TORONTO (Reuters) — As Canada's economy enters a period of sluggish growth, the big banks are looking to fortify their balance sheets against rising bad debts, but instead of tapping shareholders for funds, the lenders are expected to sell non-core assets and cap dividends, fund managers and analysts said.

With the economy slowing and adding fewer jobs, banks are anticipating more consumers could default on credit-card payments and mortgages, hurting profits.

Banks have traditionally issued shares or bonds to raise capital, but with stock prices of the top five banks down between 5% and 11.5% this year, further equity dilution may not be the preferred route, they said.

"(Canadian banks) are running a little bit tighter in capital than they have in the past," said Adrienne Young, director of corporate credit research at Franklin Templeton Canada.

«What they would much rather do is… find small non-core assets that they're not going to grow very aggressively anytime soon and say, right, it has done its job for us, moving on.»

Bank of Nova Scotia (Scotiabank) sold its equity stake in Canadian Tire's financial services unit back to the retailer last month, raising C$895 million ($650 million), while BMO is winding down its indirect auto lending business and reportedly looking to sell its RV loan portfolio.

While shareholders and analysts declined to name specific assets, they said banks could offload parts of their loan books, which could be attractive to fixed-income investors and private equity firms.

The five banks have spent about C$147 billion on acquisitions since 2000, grabbing credit-card portfolios, wealth and asset management firms, as well as smaller regional banks in the U.S. and abroad as a