A priority for CIBC is mobile financial services – Mr. Richard Nesbitt, the Chief Operating Officer of the Canadian Imperial Bank of Commerce, in the interview by Agnieszka Krawczyk

In 2013, CIBC reported net income of C$3.4 billion.  CIBC’s adjusted return on common shareholders’ equity was 22.3%, the highest among Canadian banks.  Our Basel III Common Equity Tier 1 ratio was 9.4%, well above regulatory minimum requirements.

We use a number of financial measures to assess the performance of our business lines. Some measures are calculated in accordance with International Financial Reporting Standards (IFRS or GAAP), while other measures do not have a standardized meaning under GAAP, and accordingly, these measures may not be comparable to similar measures used by other companies. Investors may find these non-GAAP measures useful in analyzing financial performance.

We are proud of the strongest bank recognition and of our record in generating consistent and sustainable earnings over the long term, while achieving strategic growth.

AK: In September 2013, the Statistics Canada published the data revealing that one quarter of Canadian households spend over 30 percent of their monthly income for  rent or credit costs. The OECD claims that the Canadian housing property market belongs to the most over-evaluated ones in the world.  How do you see the future? Will the housing bubble blow?

RN: The Canadian housing market continues to perform well, although there are pockets of regional differences. There is a justified concern over elevated house prices given a highly indebted consumer and the potential for rising interest rates.  Accordingly, the Canadian government has responded in the last few years by taking a number of prudent steps to slow the pace of mortgage growth.

The Canadian economy continues to perform and the unemployment rate remains steady which would lead us to believe we are unlikely to see significant deterioration in household credit quality.  Consensus views are that while housing may be overvalued currently, prices will moderate over time and an abrupt correction is not expected.

AK: CIBC is one of Canada’s so called “big five” banks whose deposits are worth around 2 trillion CAD. In comparison, the GDP of Canada amounts to 1,8 trillion CAD. The European Union is trying to find solutions to protect the common European market from the fall of big financial institutions and first steps have already been taken to create a Banking Union. What are your views on the European efforts to create stronger European supervisory mechanisms and a Single Resolution Fund?

Richard Nesbitt, Chief Operating Officer, CIBC/Fot. CIBC

RN: Canada’s banking regulator, the Office of the Superintendent of Financial Institutions (OSFI), and the Canadian government have earned a reputation globally for sound management of the financial sector.

Notably the World Economic Forum has ranked Canada’s financial system the soundest in the world for six consecutive years from 2008 to 2013.

OSFI manages risk in the Canadian banking system in a number of ways, including capital adequacy, and  liquidity, as well as “living wills” which explain how a bank would dismantle its operations in the event of an extreme financial crisis.  OSFI is also focused on ensuring that the activities and operations of Canadian banks are prudent.

In the evolving regulatory environment today, where regulation on banks is increasing, governments and regulators will need to be mindful of the potential rise in shadow banking, where activities done by traditional banks move to less regulated, non-bank firms.

AK: The European Union wants to divide the investment and retail banking to avoid problems in the future. Do you think about similar steps in Canada?

RN: The universal banking model in Canada has proven to be a successful one. The fact that Canada’s big banks came through the financial crises in strong shape is evidence of that.

AK: CIBC is a great multinational bank, but it is not widely present in Europe. Do you plan any further expansion in this direction?

RN: CIBC has been in Europe for more than a century.  We have a strong team in London that provides investment banking advisory services, corporate lending and access to Canadian capital markets, with a focus on energy and mining.  These are core Canadian industries where we have leading capabilities.  As our clients in these sectors are becoming more global, we are committed to building our presence in regions we know well,  to support their success and also to develop new relationships in our expert areas.

AK: The Office of the Superintendent of Financial Institutions said that 6 banks in Canada are too big to fall. So from 1 January 2016 the tier 1 ratio for these 6 banks will be 8 percent, and 7 percent for all the others.  What are your views on that?

RN: As at the end of first quarter on Jan. 31, 2014, CIBC’s Basel III Common Equity Tier 1 ratio was 9.5%. That’s well above any regulatory minimum and makes our bank very attractive to depositors.

Banks large and small are free to set their capital ratio targets at or above the regulatory minimum.

AK: The CIBC is one of the most innovative banks in Canada. In 1967 the Yonge and Bloor branch in Toronto was the first Canadian bank branch to update customer bank books via computer. At the end of the 60s you introduced first 24-hour cash dispenser in Canada and in February 2010 you became the first Canadian chartered bank to launch a mobile banking IPhone Application. What are your next steps?

RN: CIBC has consistently invested in technology to enhance the client experience. That includes everything from ABM enhancements to mobile banking and mobile payments.

A priority for CIBC is mobile financial services.  Smartphones have proven to be transformative in terms of how Canadians send and receive information, content, and even money. We invested early in mobile because we saw the potential for the anytime, anywhere access that you can only get with a mobile device.

AK: What about other technologies?

Headquarters of CIBC, Toronto/Fot. CIBC

RN: Other technological advances in banking have often been centred on added convenience. ABMs and online banking gave Canadians access to banking 24/7 — which represents a tremendous convenience – and these channels have grown to be essential banking services for millions of clients.

However, mobile has the opportunity to be a game changer because of the way many Canadians are adopting the “always on” lifestyle.

Never before has there been an anywhere, anytime way to manage your finances and connect with your bank. That’s why we invested early in mobile, and why we are leading the market in mobile banking and payments.

In 2010, we were the first bank to launch a mobile banking app for iPhone.  Client response was immediately positive.  And mobile banking is now growing at a faster rate than online banking did when it was introduced in the 1990s.

In 2012 we were the first bank to introduce a mobile payment app.  This innovation went a step further and brought an everyday activity (day to day purchases) to a client’s smartphone. Clients benefit from the convenience of being able to pay with their phone, which are increasingly becoming lifestyle devices for Canadians. CIBC benefits through deeper relationships and clients, and a greater number of touchpoints with them on a daily basis. We are tapping into our early adopters to build the mobile payments market in Canada, and continue to build our offer so that more Canadians could pay with their phone.

More recently we’ve enhanced the services we offer through mobile banking which allows clients to deposit a cheque simply by taking a photo of the cheque and uploading it.

Our primary focus in making these investments is in giving clients access to their finances anytime, anywhere. Clients increasingly value having unparalleled access to their banking as part of their relationship with CIBC.

AK: Modern technologies induce certain security risks. What is your answer to these dangers?

RN: Security is an important topic for CIBC and our clients. As we have introduced a number of innovations such as mobile banking and payments, we have also taken the appropriate steps to ensure that our clients can bank with confidence, knowing that we have the appropriate security measures in place. In addition, CIBC offers a security guarantee to our clients which protects them in the unlikely event of fraud. Further information is provided here.

AK: During the French revolution a journalist Jacques Mallet du Pan coined an adage: “the Revolution devours its children”. Because of technological advancement all over the world banking branches are being closed losing the battle with mobile and on-line banking. Between 2008 and 2012 the number of banking branches in the whole European Union decreased from 237 thousand to 217 thousand. What is the situation in your bank with over 1100 branches all over Canada?

RN: CIBC’s branch network has grown in recent years and we continue to invest in this channel, as it remains an essential component in how our clients interact with us. We have also extended branch hours to increase the number of branches open on Saturdays and on Sundays to meet the needs of clients in their local area.

Thank you very much for the conversation.

Agnieszka Krawczyk