Scotiabank Strategy & Financial Objectives
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Key Issues - Canadian Household Debt
Household debt has been increasing since the mid-1980's
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Low interest rates, demographics (including immigration), financial innovation and shift in consumer
attitude/behaviour
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Driven largely by increasing mortgage debt
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Media/industry participants largely focus on a "flawed❞ metric
"Household debt to income" ratio mixes a "stock" or debt with "flow" or disposable income => put
another way, no one expects a borrower to pay off all their debt with one year's income
Other key considerations around consumer indebtedness and consumer resilience to shocks:
Housing affordability - Debt service ratios are at all-time lows
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Canada ranks among the best against other developed countries as per McKinsey
Net worth -Net asset levels (assets less debt) are also near all-time highs
■ About half of those assets are financial (not just real estate)
■ Asset growth has outpaced debt growth
Interest rate shocks - Despite outlook for higher rates in time, there are mitigating factors
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Many Canadians take advantage of prepayment options (interest is not tax deductible in Canada)
Canadians have substantial equity in homes
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Variable rate borrowers can "fix" their mortgage if rates rise
■ Variable rate borrowers are adjudicated at the posted 5-year fixed rate
Unemployment rate - a key driver of delinquencies and losses (given borrowers ability to pay debt)
■ Levels are expected to remain fairly stable over the next 2-3 years
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