Ebrahim Poonawala: I guess maybe a question for Graeme. You mentioned higher interest rates impacting credit or credit normalization. At what point — and I hear you in terms of expectation for a mild recession. But at what point do we start worrying about credit normalization actually leading into a more pronounced deterioration that looks a lot recession-like? Like what are the indicators? Is it all about jobs and what the job market does? And give us a sense of across the customer segment, commercial consumer, where are you seeing the most pronounced pain due to the higher interest rates?
Graeme Hepworth: Yes. Thanks, Ebrahim. Maybe just to provide a little bit more color on kind of how we’re thinking about the environment. I think, as we’ve guided earlier, we certainly continue to expect that credit outcomes, negative credit outcomes will rise through the year as we progress through the year heading back towards more historic norms kind of expecting that to start to peak out towards the end of this year and to the first half of next year. As you said, there’s different aspects we look at that. And that these are the things that really factor into our models in IFRS 9. And so as you said, it’s debt servicing costs, certainly, that directly impacts things like our mortgage portfolio. But we do worry about and think about the overall kind of wealth effect and how that’s going to squeeze out discretionary income — discretionary expenses as well.
And so that’s kind of the things that factor into why we forecast GDP the way we do and why we’re forecasting unemployment to increase over the course of this year. Right now, we’re at exceedingly low levels there, but we do expect the unemployment to graduate up to kind of more in that 6.5% to 7% range at the tail end of this year before kind of coming back to more historic norms. And so those are the factors that we think really go into our models and how we assess kind of the overall loan losses. Having said that, we continue to see in the near term and kind of very significant outperformance, particularly on the job space. We’ve continued to expect unemployment to rise. We’ve continually been surprised by the strength of the job market in Canada and the U.S. And so that’s kind of always what continues to push back the timing of this normalization a little further than we’d anticipated.
But — so yes, jobs is a big one here. And what you see — when you think about the retail side, maybe to break into that a little bit further, certainly, we’re seeing the delinquency trends kind of move up. But the insolvency side of it, which is kind of the other half of the equation, is very much tied to the labor market. And we have seen insolvency start to tick up a little bit, but they’re still well below pre-pandemic norms. And so until we really start to see that kind of an situation, labor move, it’s going to continue to be a near-term benefit to the overall credit outcomes.
Ebrahim Poonawala: And just on that, Graeme, higher rate structurally, when we look at the commercial real estate market, C&I borrowers were seeing their cost of capital go up, no material pain there.
Graeme Hepworth: Commercial real estate is, certainly, as I noted, I mean, that is one of the portfolios that we are most focused on for sure. I would say it’s a sector that I think the underwriting standards have been very strong. Have been very disciplined on for some time. If you look at portfolios, we were doing a deep dive review on our Canadian commercial portfolio, for example, looking at the the mortgage side of that. I mean, we have had a strategy very focused on kind of your top-tier clients. And so these are clients that I think are very seasoned, very capable to weather kind of a through-the-cycle set of challenges. And two, again, the underwriting standards have been very, very strong there. You look at our mortgage portfolio on that side.
