Bharat Masrani: Let me take that, Lemar. This is Bharat. I think it’s not correct to say that’s what the bank does. Bank is a very disciplined approach on pricing, volumes, profitability, how we enhance the customer experience. We want to make sure that the markets in which we are in, we remain competitive. So, I don’t think the way you position it that the volumes are coming in because there is some stated strategy here that is unusual in nature. I think, Michael explained very well as to how he’s growing the RESL market, for example. And you heard him. I know it was a comprehensive answer, but it was a very good one that the investments we’ve made over the years are paying off. And in fact, those products are generating margins that are well — very comparable to the historical standards we’ve seen.
And frankly, I’m very happy with the business that’s coming in. So the strategies that we have don’t change on a dime and in a quarter. We have a particular disciplined long-term approach on how we manage the bank, and you should not think that we’ve changed that.
Lemar Persaud: And then kind of on a related note, so Kelvin, maybe. It sounds like the guide on margins is a bit softer versus the guide last quarter. I think you guys are suggesting maybe a bit more of a pickup by the end of the year. So, do I have that right that you’re kind of walking off the expected pickup in margins? And then, can you talk about what evolved a little bit more unfavorably than anticipated versus last quarter to cause you to move off there?
Kelvin Tran: Sure, sure. So first, yes, it is softer than what we spoke about last quarter. And the dynamics in Canada and the U.S. are different. In Canada, it’s about loan growth being stronger than we expected, and this is really a balance sheet mix issue. The underlying margin expansion on deposit that continues because of the tractor on and off rate. And then the U.S. is really a result of the competitive markets that we continue to monitor very closely over there.
Operator: The next question is from Nigel D’Souza with Veritas Investment Research. Please go ahead.
Nigel D’Souza: I wanted to touch on the deposit trends for U.S. Retail. When I look at the disclosure on insured versus uninsured, it looks like that mix excluding suite deposits is relatively the same quarter-over-quarter. But the positive concentration in U.S. Retail has gone up relative to Q2. So just trying to get a sense of what exact shift in deposit mix puts drag on NIM this quarter? And maybe if you could touch on what you’re seeing in noninterest-bearing deposits and whether you’re seeing deposit outflows for insured deposits?
Leo Salom: Nigel, hi, this is Leo. Let me take that. I’ll first talk about NIM. And Kelvin, I think, framed it well earlier. So NIM at 3% was up 38 basis points year-on-year, and it was down 25 basis points quarter-on-quarter, essentially two factors driving that. One, higher deposit cost, but probably the larger factor was just the deposit migration that we saw to higher-yielding money market and term products, largely amongst our mass affluent high-net-worth clients on the retail side and institutional government clients on the commercial side of things. I’d say the one point that I would raise though is that there is a bit of a timing or maybe even a catch-up factor here. If you look at our growth in NIM over the past five quarters or for five quarters consecutively, we did increase 118 basis points, which was one of the highest amongst our expanded peer set.
Over the last two quarters, we’ve given about 29 basis points of that back. And that’s as a result of the fact that maybe we lagged a little bit in terms of our pricing trends earlier. But given the absolute rates where they are and some of our more recent pricing, you’re seeing a little bit of that migration taking place a little later in our book relative to others. But I still feel — I want to just highlight that I feel quite comfortable, this quarter was an inflection point. If you look at it on a spot basis, deposit levels overall did increase by about $1.4 billion or 0.6%. If you double click to your point around concentration, the one concentration factor I’d highlight — for the most part, I’d say the book was very stable, very similar to what it was in previous quarters.
We are seeing — we’re having success in a number of our corporate and government cash management programs, and particularly in government, where we became the number 3 deposit institution to the government sector, I believe last quarter. We’re seeing good success there. And those deposits tend to be a little bit more concentrated in nature. But for the most part, the composition of the book remains strong. And I would argue the core checking account base, which has always been a strength of our overall deposit franchise, remains strong. In fact, this quarter, we had record gross and net checking account sales. So, I feel good about the underlying trends, but there is going to be a little bit of pricing pressure in the near term as clients seek alternative yields, either on-balance sheet or off-balance sheet.
Nigel D’Souza: Okay. And I guess on that point, how do you balance the pass-through of higher deposit rates versus to be competitive with money market alternatives versus liquidity needs of the banks? In other words, are you okay with some deposit one-off here, or would you like to maintain deposit levels at the cost of higher deposit rates?
Leo Salom: We are. We look at the wealth portfolio as an important factor in this equation as well, where a client is predisposed for higher yield, and it might exceed what we’re willing to price our overall deposit book. We’ll leverage off balance sheet investment alternatives in the form of treasury brokerage solutions, laddered bond portfolios or other solutions of that nature. So I think we’re looking at it holistically, not just trying to solve for one part of the — one part of the balance sheet. We’re really thinking about trying to serve clients in aggregate.
Nigel D’Souza: And just a question for Ajai on credit losses. If I heard correctly, I think the guidance is for PCL ratio of 35 basis points this year. Given the ratio — PCL ratio in the first three quarters, I think that implies kind of a step-up in credit losses in the fourth quarter, closer to 45 basis points or so. Is that roughly correct? And that would kind of get you back to where it was pre-pandemic. So just wondering if you could elaborate on — if you’re seeing, let’s say, an accelerated normalization back to the pre-pandemic credit trend.
