Canadian banks begin to ease flow of credit again

More good news for the Canadian economy even if it needs to be viewed with mild caution. There are some relatively clear indicators that credit lines are beginning to thaw in the early weeks of 2010 especially when compared with the last few years. David Longworth, the Bank of Canada Deputy Governor today stated that financial conditions have improved ‘significantly’ and that further measures can be anticipated to help with overall liquidity. In today’s speech at the C.D. Howe Institute in Toronto Longworth added:

“The financial crisis has subsided, and financial conditions have improved significantly over the past 10 months, both globally and in Canada,”

Emergency measures enacted last year to assist credit markets during the global downturn have now been canceled which increases perception that relative calm is returning to the financial sector. The return of some confidence isn’t a stampede but a gradual lean toward less distressing actions within the banking industry are the most positive indicators that have been seen in better than two years. The overall index of financial conditions from the central bank in January was the healthiest in more than a decade and a complete turnaround from the lowest ebb reached in December of 2008.  Investors were also advised by Longworth that the benchmark interest rate would hold at the unprecedented low of 0.25 percent until at least the mid point of 2010, the bank also suggests that the economy will not return to full capacity until Q3 2011.  The Canadian dollar fell back to $1.0466 from the highest point of $1.0410 reached on Jan 20. That mark was the highest trading value in 3 weeks.

Exchange rates that have traded at a range from $1.04 to $1.30 versus the US $ remain at the very high end of the 52 week yield. Export and import markets will continue to see if the stabilty witnessed over the last 3 months remains into the second quarter of 2010 as production orders for the new year are becoming filled. A recovery begins with stability and the last 90 days have at least provided a foundation for both business confidence and consumer confidence. The banking sector in direct contrast to the remainder of the world continued to operate without the requirement of bailouts since the credit crisis blossomed in 2007. Geneva’s World Economic Forum named the financial system in Canada as the world’s most secure for the second year running. The ripples and panic still causing hesitancy in the European and US financial markets still seem quite removed from a banking system beginning to flex again. Surveys from Bank of Canada revealed that twice as many executives cited loans as being more obtainable as those who felt securing credit was harder than in 2009.

While it is too early to celebrate growth just yet the conditions and stability being witnessed allow the speculators to at least entertain the notion for the first time in 30 months and finally the banks are once again considering the credit lines that need to be in place for expansion to follow. We’ll continue to watch other leading indicators, surveys and reports as 2010 rolls along. It’s pertinent to note that the Asian and European markets also have reported modest gains in the last few weeks, certainly the first time recently that all three major markets have polled positive numbers simultaneously within the last year. Rather than the huge 2-4 point daily gains and losses often seen in 2008 these daily gains of 0.3-0.8 percent each indicate that the secure footing being sought is beginning to permeate the global economy. We’ll be more than pleased to see the banks continue to loosen up the restrictions on credit with gradual prudence so that expansion is viable as opposed to just being considered.

Statistics for this article courtesy of Bloomberg