BANK OF CANADA RATE EXPLAINED + 3 CANADIAN BANKS TO BUY

BANK OF CANADA RATE EXPLAINED + 3 CANADIAN BANKS TO BUY

What’s up guys, it’s wiz.

Welcome back to the channel. If you are new, I am a Canadian investor. I cover a whole lot of information about investing in Canada and do research into our Canadian market. I dive into growth investing, dividend investing and Canadian small caps / penny stocks. Today, I will quickly go over the Bank of Canada rate hike and how banks reacted to it yesterday, then will showcase 3 Canadian banks that you can begin to invest in right away. For new investors, you need to join Wealthsimple Trade if you are looking to start investing and live in Canada. If you use my link in the description to join Wealthsimple, you get 2 free stocks worth up to 4500$ so do not miss out.

For those not familiar or have not yet learned about the concept of this interest rate hike or key rate by the Bank of Canada, let me quickly explain it to you. The key policy rate, also known as the target for the overnight rate, is how much interest the Bank of Canada wants commercial banks, like RBC, TD or BNS, to charge when lending each other money overnight to settle daily balances. Knowing how much it costs to lend money, or deposit it with the central bank, helps set the interest rates charged on things like loans and mortgages. Basically, lowering the key rate makes it cheaper to borrow and spend, usually during economic downturns when inflation rates are low, with the goal of creating growth. Raising rates has the opposite effect by cooling spending when inflation rises above the Bank of Canada’s comfort zone of between one and three per cent, which inflation is currently way above. Banks rushed to raise prime rates after Bank of Canada’s 0.5% hike. Royal Bank of Canada and TD Bank raised their prime interest rates hours after the Bank of Canada announced it is raising its benchmark interest rate by 50 basis points. Royal Bank kicked off the increases. The 50 basis-point increase by Canada’s largest bank by market cap mirrors the Bank of Canada’s hike, taking RBC’s prime rate from 2.7 to 3.2 percent. TD followed minutes later yesterday, also increasing its prime rate to 3.2 per cent. Bank of Montreal, Scotiabank, and CIBC followed with the same bump. Canada’s central bank raised its key rate to 1 per cent to fight surging inflation, which at 5.7 percent is at the highest level since 1991. Ongoing geopolitical tensions and high inflation have wreaked havoc on the global market. For investors in bank stocks, this has provided the backdrop for an interesting setup. Loan growth could slow, and credit quality could deteriorate. On the other hand however, rising interest rates used to combat inflation could be a net positive for banks. Net interest margins tend to rise in such periods. Time will tell. However, for those looking for exposure to Canadian banks, here are three great picks to consider right now.

Bank of Nova Scotia (ticker symbol BNS) is the third-largest Canadian bank in terms of market cap. This lender has more than 950 branches all over Canada, serving more than 11 million customers across the retail, small business, and commercial banking segments. In addition to domestic customers, Scotiabank also has a massive number of international customers. It has around 1,900 international branches. Apart from Canada, it has a significant footprint in Latin America, the Caribbean, Central America and Asia. This sort of international diversification is something I think is important for Canadian investors to consider. Additionally, Scotiabank is among the top dividend-paying banks in the country. Currently, Scotiabank has a dividend yield of around 4.6%. Investors looking for a generous dividend yield alongside meaningful growth can’t go wrong owning this Canadian bank for the long term.

The oldest bank in Canada, Bank of Montreal (ticker symbol BMO) is another top bank stock to own. This company also happens to be a Dividend Aristocrat that has been paying dividends for over 190 years. It has been increasing its dividend consecutively for nearly a decade now. Bank of Montreal has a sizable presence within Canada with more than 900 branches. With more than 12 million customers and a total of more than $852 billion under management, it is the eighth-largest bank in North America. BMO’s dividend yield isn’t as high as its peers. However, this stock has proven its worth as a very long-term investment. Indeed, one of the reasons for BMO’s otherwise low yield is the bank’s balance sheet quality. In my view, this offsets any concerns around income.

The large cap in the Canadian banking space is Royal Bank of Canada (ticker symbol RY). This lender is the largest financial institution in Canada and is among the largest in North America as well. It is also the largest company (in terms of market cap) on the TSX. Accordingly, for investors looking for size, RBC is it. Royal Bank is a massive financial organization with over 85,000 employees. It operates in 36 countries and has around 17 million customers. This diverse location bank is financially stable and is growing at a healthy pace. In terms of dividends, it has been increasing its dividend consistently for nine years. It has the second-largest dividend payout among all the six big financial institutions in the country. Great Canadian bank to look into if you are not already holding.

Hope you guys enjoyed this overview of what is happening with the interest rate hikes by the Bank of Canada, and the showcased 3 Canadian bank stocks. Overall, a portfolio with banking exposure spread to all three of these options isn’t a bad idea. In my view, these are all top picks in this environment. Investors have a number of great options among Canadian bank stocks to choose from right now. Please watch my previous videos on Canadian stock recommendations and let me know of any Canadian stocks you want me to look into and give my opinion on. Let me know in the comments, since I really want to expand my knowledge in the Canadian market. If you did enjoy this video, leaving a like really helps grow the channel! Thanks for watching, I’ll see you guys in the next video!


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