Amidst the ongoing financial effects of the pandemic, soaring interest rates, and the possibility of an upcoming recession, banks are making mass layoffs in Canada. Over the past few months, major banks including Royal Bank of Canada, Bank of Montreal, and Scotiabank, have laid off a combined total of at least 6,000 employees.
While the reasons for the layoffs vary by institution, including changing customer preferences and the desire to balance the books before the close of their fiscal year in October, the banking layoffs in Canada are striking in sheer numbers. But what do these mass banking layoffs mean for Canadian consumers? Are we in for a similar banking crash that affected U.S. regional banks earlier in 2023, or do these layoffs potentially indicate a more profitable future for Canadian investors?
Banking layoffs in Canada so far in 2023
While there are still approximately two months left in 2023, the following banks have made — or may make — mass layoffs in Canada this year.
Bank of Nova Scotia (Scotiabank): Scotiabank posted the largest number of banking layoffs among the major Canadian banks in 2023, reducing its global workforce by 3% (more than 2,700 positions). The Scotiabank layoffs were announced in October due to customers’ changing habits as well as the need to streamline the bank’s operations.
Bank of Montreal (BMO): BMO laid off roughly 100 employees in its Capital Markets division in June, half of which were in Canada. The BMO layoffs mark a 3.5% decrease in the division, and came following a 24% decrease in BMO Capital Markets profit in Q2 of 2023 from Q1 of the same year.
The Royal Bank of Canada (RBC): RBC cut 1% of its workforce since May and is planning to cut up to 2% more before the end of 2023 for a projected total of at least 1,290 RBC layoffs. While RBC beat analysts’ profit projections for Q3 of 2023, RBC Chief Executive Officer, Dave McKay warned of slowing economic growth ahead.
National Bank of Canada: National Bank of Canada has cut an unspecified number of jobs in its capital markets division, according to sources familiar to the matter. The layoffs were made in the bank’s equity research and sales and trading divisions.
Desjardins: The Quebec-based financial institution announced in October that it was cutting 400 jobs, or approximately 0.6% of its employees due to the current economic climate.
The Canadian Imperial Bank of Commerce (CIBC): CIBC has yet to publicly announce staff layoffs, but did reveal in August that the bank’s staff was down 1,709 employees in Q3 of 2023 from Q4 of 2022.
Toronto Dominion Bank (TD): While TD has yet to announce layoffs, they may be forthcoming. TD Bank failed to meet analysts’ profit projections for its recent quarter, and could follow the other major banks in reducing staffing in the near future.
Why are there banking layoffs happening in Canada?
“With the current banking environment, where we came from during the pandemic, and the current macro-environment the banks are operating in, it isn’t surprising,” says Carl De Souza, senior vice president and head of Canadian banking at DBRS Morningstar.
Baking layoffs in Canada can be attributed to a number of factors, including:
Customer preferences: With many customers handling their banking online, there is less demand for in-person transactions at bank branches, allowing the banks to reduce staffing. According to the Canadian Bankers Association, 78% of customers now use digital channels (online or app-based) for most of their banking needs.
Wave of potential loan defaults: Soaring interest rates may eventually lead to a wave of loan defaults in Canada, and the major banks are setting aside large sums of capital to cover potential defaults. RBC set aside $616 million for potential loan defaults, up from $340 million a year ago, while TD set aside $766 million, up from $351 million the year prior.
Compensating for over-hiring: “Many of the large banks raised salaries and ramped up hiring in 2022, and to a certain extent, over-hired,” says De Souza. “So, the layoffs reflect this.” RBC’s McKay told analysts in May that the bank “overshot by thousands of people,” and are now reducing staffing levels to compensate.
Q4 clean-up: The major Canadian banks finish their fiscal year at the end of October, and Q4 is often thought of as a “clean-up” quarter. In order to start the next fiscal year in better financial standing, there’s a tendency for banks to make staffing cuts and organizational changes in October. “The large Canadian banks continue to take steps in managing costs, and considering the current challenging operating environment, expenses remain elevated,” says De Souza. “With [the banks] wrapping up Q4, this is something they can do ahead of the end of the fiscal year to go fresh into fiscal ’24.”
Should Canadians be worried about banking layoffs?
An April WealthRocket study showed that 56% of Canadians polled are concerned that Canada’s banking system may be susceptible to collapse, similar to what occurred with U.S. regional banks earlier in 2023. But De Souza doesn’t believe the mass layoffs signal any risk for the Canadian banking system as a whole.
“Enough time has passed where the Canadian banks have proven to have come out relatively stable,” says De Souza. “Particularly from the perspective of funding liquidity. Deposits have remained relatively stable through that volatile period in the U.S. regional banking sector.”
While the collapse of a number of U.S. regional banks has worried investors on both sides of the border, the Canadian banking system is more centralized and ensures greater control and stability.
“Our banking sector here is more concentrated and dominated by the Big Six [Banks],” De Souza says. “While that heavily concentrated banking sector may limit competition and choice for consumers, it also provides stability in times of turmoil.”
What does the future hold?
Looking forward, De Souza believes that while more banking layoffs in Canada may be coming, the belt-tightening from the major banks should be beneficial to Canadian investors in the long run.
“There are likely more cuts to come, but that’s a guess,” admits De Souza. “There’s a lot of uncertainty still in the market with respect to interest rates and how long it will take to bring inflation back down to target.”
In the meantime, banking layoffs in Canada may be inevitable as the banks adjust their budgets to reflect the current economic reality in the country.
“It’s never good to see layoffs of any nature,” De Souza concedes. “As we move forward and hopefully get some clarity on these things, the banks will continue to see how their operating environment is evolving, and figure out if any more action is required.”