Phil Thomas: No. It means that they have two payments in their deposit accounts.
Darko Mihelic: Okay. Okay. That’s fair. And — sorry, go ahead.
Phil Thomas: No, no, I was just going to say, maybe as another sort of indicator on the fixed side, it’s about 3.5.
Darko Mihelic: Okay. But you mentioned that the delinquency statistics are such that there’s very few of the variable rate mortgage customers in the delinquency pool, so they’re really coming from the fixed rate. Is that…
Phil Thomas: No, actually, where we’re seeing it is on single-service customers. So those customers with one product with the bank tend to have — that’s where we’re seeing the highest level of stress. And actually, as I was thinking through this, it actually the testament to the strategy that we put forward last quarter, really focusing on primacy because actually, what we’re seeing is primary customers are running even through this stress period with much less delinquency than single-service customers.
Darko Mihelic: So single-service customers and broadly speaking, those are fixed rate?
Phil Thomas: No, I would say customers with one product with the bank outside of the mortgage portfolio.
Darko Mihelic: Okay. But the delinquency numbers are then a mix of — I’m just trying to understand, if we’re saying it’s 20 basis points of delinquency, what you’re suggesting is it’s single-service customers, but I don’t — I still don’t understand if the breakdown is variable rate or fixed?
Phil Thomas: Sorry, Darko. I think there’s two components here. One as I explained it, what we’re seeing is — so there’s the entire portfolio and then there’s the mortgage portfolio. If I could focus on the mortgage portfolio for a second. We’re seeing VRM at 90-plus — at 26 basis points, fixed at 17%. So just to give you a sense of where the delinquency is coming from. But my point on multiproduct is more of the portfolio level. If I step back away from customers without mortgages, this is a single service customer where we’re seeing stress in the portfolio.
Darko Mihelic: Okay. Okay. That’s helpful. Thank you. And really quickly then, just going back to what you mentioned about Colombia and Peru potentially having some issues. You said you were proactively managing exposures. Can you just put a little color on that? And what should we expect? Should we expect lower balances, some NII impact? Or really, this is just about some sort of portfolio trimming and really just working towards a lower PCL, but no revenue impact?
Phil Thomas: That’s exactly right. And I think what Francisco and myself working with the team have been very focused on collections activities, account management activities. So there has been some tightening at the point of originations. We’ve been focused on certain tactics as it relates to account management, and there’s a heightened focus on specialized collections teams, digital offers, loss mitigation tools, enhanced analytics around segmentation in these markets. And — but I would say, when we look at the numbers, we have seen improvements in the risk-adjusted returns and risk-adjusted margins in these portfolios quarter-over-quarter. So it does seem like we’re getting paid for the risk.
Darko Mihelic: Okay, great. Thanks very much.
Operator: The next question is from Ebrahim Poonawala from Bank of America. Please go ahead, your line is now open.
Ebrahim Poonawala: Good morning. Just one, I guess, Phil, sticking with you on credit. I think you mentioned that you expect PCLs to peak in the first half driven by international. Just talk to us in terms of ex international in Canada, how you expect PCLs trending? And what are you assuming in terms of the unemployment rate at the end of the year? And shouldn’t PCLs — impaired PCLs in Canada continue to worsen through the rest of the year into ’25?
Phil Thomas: Yes. I’ll just reiterate that we expect to be within the full year guidance of 45 to 55 basis points for the year. I think the impaired loans will definitely be impacted by rates. And I think as we start to see rate decreases, that will be — there’ll be a bit of lag and then we’ll start to see that benefit clients, the same way we’re seeing it in Latin America. In terms of unemployment, in the sub-pack here, it’s at 6.4%, but we did have a revision down to 6.1%. And I think the full year forecast we have — we’re using in our models right now for the base case is around the sort of 6.4%, 6.5% range. As I look at — I’m not sure unemployment is going to be the major driver here, because there’s a lot of moving parts with immigration.
And so we’re trying to look beyond the unemployment number and just trying to look at how customers are behaving. We’ve been using a lot of our behavioral analytics models to model out consumer behaviors and consumer patterns. We’ve also been looking at just sort of spend patterns, what people are spending on and how they’re transitioning their spend. So there’s a lot of variables we’re looking at beyond just the unemployment rate here. Just given some of the idiosyncratic events happening in the Canadian macroeconomic landscape. As I said earlier to one of the other — answer to one of the other questions, I suspect we’ll start to see relief in Canada probably in Q3 into Q4 with a more normalized run rate into the latter half of the year and into the beginning of 2025.
Ebrahim Poonawala: And one quick follow-up, Phil. In terms of the variables, how much is — how much do you look at the 5-year part of the curve versus the overnight rate? Like where we’ve been having conversations as if the 5-year stays where it is today, despite the rate cuts, does that keep the pressure on the consumer spending, et cetera, through next year? Just if you can talk to the sensitivity between those two rates? Thank you.
Phil Thomas: It’s a good question. I think what we’ll see is I suspect maybe step back and look at it from a credit perspective. I suspect with the VRM book you’ll start to see some further stress in that portfolio into Q2 into Q3. And it will be really the Bank of Canada rate decreases that will start to pull in and have the biggest impact to the clients.
Ebrahim Poonawala: Got it. Thank you.
Operator: The next question is from Sohrab Movahedi from BMO Capital Markets. Please go ahead, your line is now open.
Sohrab Movahedi: Okay. Thank you for squeezing me in. Two quickies. Raj, overall tax rate has been under 22% for a couple of quarters. What is the right number, do you think, looking ahead?
Raj Viswanathan: I think we should get to around 21%, I think, in the next couple of quarters, Sohrab. So for the whole year, it will still be probably between 20% and 21%. Lots of moving parts, right, across [indiscernible], yeah.
Sohrab Movahedi: Okay. And then you called out revenue growth year-over-year, 5%. What do you think that revenue growth is going to look like balance of the year? And what would be the contributors? There’s obviously puts and takes. You’ve got balance sheet kind of maybe RWA optimization, what’s happening with fees, NIM? Just get a sense of what that revenue growth of to look like balance?
Raj Viswanathan: I think revenue growth should continue to be positive, and I think about it sequentially, obviously, in a shorter quarter, next quarter and ignoring that bit. Because we talked about net interest margin continuing to improve in the bank a basis point on $800 billion of earnings is a simple math over there. We don’t expect too much loan growth in Q2, but we expect the second half to be stronger than the first half, sequential growth both in Canada as well as in International Banking. So that should help with NII. NII, like you mentioned, fee income and trading operations completely depend upon market opportunities. We’ve had a great start to the year, which would help for — as we think about the whole year, but sequentially, that’s a little hard to predict, as you can imagine.
But revenue growth is something that we expect to see for the remaining 3 quarters across the business lines and therefore, benefit the bank as a full. GBM is the only one I would be a little cautious because it depends on market activity. But the one I’d call out really is wealth management. As the markets have improved, we have seen quarter-over-quarter improvement in wealth as in Q1. I think that will continue as the markets remain — hopefully get better, particularly with the rate situation, helping our debt portfolio and the assets under management and the equity market, they remain strong [indiscernible]. So it should be good news, Sohrab.
Sohrab Movahedi: Thank you.
Operator: There are no further questions on the line. I would like to turn back the meeting over to Mr. Raj Viswanathan.
Raj Viswanathan: Well, thank you very much. On behalf of the entire management team, I want to thank everyone for participating in our call today. We look forward to speaking to you again at our Q2 call in May. This concludes our first quarter results call, and have a great day.
Operator: Thank you. The conference has now ended. Please disconnect your lines at this time, and we thank you for your participation.
