Okay, we'll start our next section. Thank you all for joining us. Second day, my first fireside chat of the day. We have Raj Viswanathan from Scotiabank, CFO. Thanks for joining us today, Raj.
Likewise. Thanks for inviting me.
As you all know, bank reporting happened recently, so this is going to be a lot of follow-up from the conference call and your results. I wanted to just sort of run down a few things. Of course, I have to put on my glasses so I can read my own writing. I think we'll start like as we have been starting with most banks, talking about the sort of the waterfall of ROE.
Mm-hmm
of getting to 14% by 2027.
Mm-hmm.
A lot of the improvement is coming out of the Canadian banking business.
Right.
I had assumed that some of that would be credit, and I thought that that was going to be a key factor in that improvement. Maybe you can correct me, or we can expand upon what that big improvement will be in Canada to get you to cross that finish line by 2027.
Absolutely. Happy to talk about it, Darko, and thank you again. The waterfall was done deliberately because we did set a target of 14% in our Investor Day in 2023, and we wanted to show or demonstrate our confidence that we will achieve that one year in advance. That's why we talked about 2027 all the way from Q1 2026. As you pointed, the biggest driver is the Canadian bank, 55 basis points-65 basis points, about 100 basis points improvement that we expect to get. A lot of it does come from what we call risk-adjusted margin. We like to look at it as margin and PCL together 'cause they do go together and there's a relationship, although there might be time lags. I'd say the risk-adjusted margin is about a third of that.
It's not the biggest component, and we believe that that is achievable. Even looking at the remainder of 2026 and beyond, we had indicated that our loan loss provisions for the Canadian bank would be slightly elevated to our normal run rate in the first half of the year, and that's what Q1 played out at 49 basis points. We do think it's gonna get better in the H2 of the year, or even if it gets delayed, maybe the latter part of the year. Through to 2027, that should help us. Margin is expanding in the Canadian bank. Put the two together, it's about a third of the contribution of the 55 basis points-65 basis points. There's a couple of other factors too, Darko. You know, we've been working very hard at business mix, as you know.
You know, we want to grow the Canadian bank, both sides of the balance sheet, so to speak, when we talk about business mix. We've made lots of progress around the deposit growth that you have seen in the Canadian bank. It is getting more difficult as rate situation has changed over the last two years, and there's more money moving into the market side of the business. We feel like, you know, we've got our frontline bankers thinking deposits as well as lending. How can we do, you know, primacy, all those things that you and most of our investors are very familiar with. We think that's going to be a contributor. You saw in Q1, we grew 5% savings and checking accounts. Term deposits were down, so the net of it is down.
You're getting the more valuable checking savings account, which does contribute to margin expansion, and we think some of that will carry on. Of course, there's gonna be the mortgage repricing. You know, 2027, we have about CAD 58 billion of fixed-rate mortgages that are coming up for renewal. We know they're going to renew at a higher rate. That's going to be part of the factor that I'm talking about. Finally, productivity. You know, we did take a charge, as you know, in Q4, and we expect to pay back the shareholder. So we know 1/2 of the benefits will likely fall to the bottom line in 2026 because we got to invest in technology and some of those necessary investments have to be made. We do believe the full year benefit will be seen in 2027.
That's a contributor too, and most of it relates to the Canadian bank, the restructuring charge. That's kind of if I break down the 55 basis points-65 basis points, there's not one which will be the biggest contributor, but certainly risk-adjusted margin is an important factor. We feel like even if that plays slightly differently to what we can estimate as best considering all the volatile markets, there's still multiple levers where we have a level of conservatism where we think that should happen with a reasonable level of confidence.
Okay, we've got RAM, risk-adjusted margin, going up, which I thought business mix would be part of, right? If we're talking about the renewal, you know, anything like that would be part of RAM.
No, it's the quality of deposits that I was talking of.
Okay
which also is a factor because we try to segregate it to saying how we balance our loan-to-deposit ratio, those things that we've been talking about. We try to separate what is perhaps market-driven, how rate curves move, compared to what we think will change the business mix of the balance sheet. That's the distinction we make.
Is the cost improvement purely a function of the restructuring, or is there something else going on as well?
There is more. I mean, we continuously work on, but the biggest contributor is the restructuring charge, right? We took over CAD 300 million. We have to pay it back to the shareholder. That's a commitment, and that will happen in 2027.
Okay. Just to touch on what you mentioned with respect to credit quality.
Mm-hmm
You know, improving in the back 1/2 of the year from the 49 basis points that we saw. I'm always interested in hearing the answer to this question: Why? Why does it get better in the back 1/2 of the year? Why is it? What's going to happen somewhere in between now and then that will improve credit quality?
Obviously, it's based on multiple forecasts, as you know, right? How you see the macroeconomics play out, as well as we have a good understanding of our portfolio, as you would expect us to have. You know, data analytics has been a theme for more than 10 years, 15 years, and it's most relevant to the retail book. We have a good sense of, you know, what is migrating. We all talk about what went to the zero day- 30-day bucket, and so on. You saw our 90-day+ is elevated this quarter across the products, particularly in the Canadian bank. Is the case in the international bank retail space. We have a good understanding of, you know, which consumers are getting into perhaps a stressful situation and, you know, when we originated, those kind of things are obviously a factor.
that's why in December, when we talked about the outlook for 2026, it was easy to parse it out saying, "We know that the H1 will be challenging," 'cause we can see some of these translating to losses or write-offs. The confidence on the H2 comes from two factors, which really relates to what is the roll rate we are seeing now. If zero-30 was call it 3% that we saw earlier, now we are seeing 2%. We feel like, you know, less number of clients are getting into the zero-30 bucket, and hopefully the 90-day+ will be lower as we go through it. The second factor, which is also very important, is the investments we make in collections. We've always been doing it's not something new.
When portfolios go through stress, you crank it up. A lot of it gets to, you know, how quickly can you identify clients who are getting into a stress situation? How early can you get to them to work with them and see if we can help them out, or at least we have a better understanding that these could translate to losses. Those would be two I'd call out. The X factor, like we touched on the previous thing, is macro. If the macro goes differently, we all know there's a trade agreement that is yet to be finalized and will happen sometime this year. We have certain assumptions, as you know, through our, you know, pessimistic scenarios and those kind of things that we disclose. Few factors. We have a good understanding of what could be the worst-case scenario.
We still feel that this will get better through the H2 of the year. If that gap is completely, you know, different than what our assumption is, yeah, that could be difficult.
What about anything else that you might be seeing on the ground? Because, you know, yesterday we saw a certain lender in Canada with auto-
Mm-hmm
You know, come to the fore and essentially say, "We know you have an auto book, and there has been some elevated delinquency there." Is there anything like that in that maybe, or a nything specifically that might be happening to auto that might sort of harm the view of the H2 , or?
No, not that we see it. Prime Auto is a big part of the business. We do have a much smaller book, which we call Near-prime. It's a business we bought almost 20 years back. We know how to run it. We've had the people with us through the journey. That book is like less than CAD 2 billion. We know actually, even in this most recent quarter, that book performed quite well.
Mm.
It's all about, you know, how do you adjudicate, how do you monitor the portfolio? If you have the right risk appetite and people to monitor it, you have a good understanding of what is at risk that you wouldn't be taking. On the Prime Auto book, no. I mean, we talked on the call a little bit about, you know, you get into when did you originate these and, you know, what were the circumstances which are leading to elevated losses. Our CRO called out the 2022 cohort, and that's a combination of low rates, excellent, you know, second-hand car values or collateral values are much better. Those we've seen some levels of stress, but outside of that, no.
Okay, great. Now, well, sorry, took a little bit of a detour there. I wanted to get back to the ROE thing.
Sure.
One of the other things that obviously, you know, one of the things with Scotiabank has always been a fairly intense focus on the international banking business.
Yeah.
You know, you're sort of already where you kind of wanna be on the ROE on IB. I mean, within reason, let's say. You know, the question is really that I've gotten this question so many times that I need to sort of ask you is
Sure
Is it enough? I mean, are we, you know, are we at a place where you could maybe achieve more in international banking and thereby increase the all bank ROE higher? Because as we all know, this is an ROE arms race in Canada amongst the Canadian banks, and everybody's seemingly raising their ROE targets every quarter. Naturally, the question is, with Scotia, in order for you to be targeting a higher longer-term ROE, does it necessitate IB to be operating at a higher level?
That's an excellent question. At 16%+, which was this quarter's ROE in international banking, Francisco and his team have done an awesome job. Okay? If I want to be completely candid, when we did the five-year plan, that's not where IB was supposed to be. They're well ahead of where we expected them to be, and we're very proud of the work they've done. Now, 16% is a good ROE, but not good enough to your question, right? We do think that ROE will get better and should get better. Most of our peers who operate in multiple countries that we have, particularly in Latin America, they're talking 18%, 19%. We have more ways to go. The pace at which it has improved is very, very, you know, good from our perspective, but we want to be conservative as we look forward.
'Cause they've done a lot of things, including regionalization, taking down a lot of costs. Plus, you know, particularly in the retail book, getting to primacy being the real thought factor. We have, you know, lost a lot of clients, which are, you know, by definition, we wanted to because they were not profitable clients. Now they've got to pivot to growth, and you've seen some of it happen in the retail space. More goodness to come, but it's a lot of countries to our core. We don't talk much about the Caribbean. The Caribbean is doing very well now, but Caribbean tracks U.S. interest rates. The assumption we make is if rate cuts happen in the United States, which is the expectation, then the Caribbean profitability will drop a bit. We have to look at multiple countries, what drives it.
We feel like 16% is just a beginning. It's going to get better to your question. Looking forward to 2027, we want to be a little more conservative. Likewise in GBM, I know you didn't ask me about it as part of it because we clubbed it together, the three countries, the three segments. GBM at 14%, exceptionally good progress. Travis and his team, again, you know, very thoughtful about what we call capital velocity within the bank. How can we do more with the capital that they have? The markets have been very constructive, as we all know. You know, if the markets remain constructive, sure, they'll do 14%. They'll probably even do better than 14% because we now have the talent.
We seem to have the capabilities, so when the markets are there, we benefit from it, both in the international banking, GBM, and in GBM as a segment. We feel good, but when you look forward, you always want to be a little conservative because you know this business has to get more investments, and we know the trajectory is not going to be a straight line up. You know, maybe in three quarters' time when we're talking about it, we'll be talking about 15%. We want to get to the 14%, which is really our target, and demonstrate that we are doing it in a sustainable manner. This job will never be done. This journey should never be done. We want to maximize ROE as best as we can with the capital that we have.
That'll continue for the foreseeable future, Darko.
When we think of these sort of the waterfall and, you know, how you get there, the spread's kind of wide, right? I mean, 55 Canada, 65. I mean, that could be a pretty big swing. What does it take to hit 50? What does it take to hit 65? Like how do we hit those upper and lower boundaries?
Yeah, I think so. I think 55 is what I would call the base case.
Okay.
You know, most of the assumptions we have made. Can it be 65 if the macro turns out to be a little better, if the loan losses come in better than what we expect, we're quite conservative, I think. Those would be two I would call out to say why we think it could be 65. To be honest, right, we try to provide a waterfall with some level of granularity. The biggest message in that waterfall for us is the Canadian banks ROE is 18%. We know we need to get to 23%, somewhere around that range, 24% perhaps, in the 2028 plan that we rolled out. If we just are able to achieve that, the 55%-65% will just automatically happen because they're about 1/3 of the bank.
We have great level of confidence because Aris and his team are investing a lot to ensure that we turn the franchise to be more profitable than it's been in the past, and the ROE is the best indicator of that.
At one point, Raj, you and I are gonna sit down and talk about how you allocate capital, 'cause every Canadian bank allocates it a little bit differently. We may not be comparing apples to apples, but-
Sure
One of the things that we're seeing in Canada is fairly sizable growth for your bank and mortgages.
Yes.
Which is a bit different from. Yesterday we had a couple of banks here saying, "Look, that's not our cup of tea right now. It's not a." Maybe you can speak a little bit to the strength in this vertical and how important it is for your bank to really be leading, almost leading the charge actually in mortgages versus some of the others.
Yeah, this quarter we had about 5% growth year-over-year, which is at the higher end, you know, compared to our peer banks, absolutely no doubt. I think we got to wind back a couple of years, okay? Where we were outsized in mortgages and the growth relative to peers, and mortgage is an anchor product. It's about CAD 300 billion on our balance sheet. It's the largest asset class, and we actually like it a lot. So there's nothing not to like about that from our perspective because it captures a big part of the retail population, and we think we know how to do it well. Where I think the biggest advantage for us is our Mortgage Plus product.
We introduced that about two and a half years back, more to help our frontline bankers understand Mortgage Plus is about having multi-product relationships, which goes directly to the heart of primacy, which is what is the kind of the backbone to our strategy when we rolled it out in 2023. The business innovated with Mortgage Plus. It, it's not something that came from the top because they scanned the market and said, "Here's a product that could become popular while achieving the bank's strategic objectives." Lots of statistics we talk about quarterly, 95% of our mortgage origination is Mortgage Plus. What does Mortgage Plus have? It definitely has a checking day-to-day account, which is what we want. Primacy comes, you know, along with it once you have a day-to-day account, and by design it is that. The mortgage is obviously another product.
The third product, we encourage it to be a credit card, a savings account, or sometimes it's a line of credit too, okay, which is another borrowing product. We see big benefits over there. A lot of the checking savings account balances is also coming from this channel Mortgage Plus over there. We feel that we have a lot of momentum over there. We have our frontline bankers as well as our brokers who are a big part of Mortgage Plus. It seems like a product that is winning for us as a retail product, particularly in Canada, and we feel there's lots of opportunities over there. It's in line with our strategy. It is a lower spread product, so that's why you don't like to do it as a single product. You want to do it as part of a relationship.
So far so good. I think two and a half years into it, we couldn't be more proud. Like, the checking savings account balances are like CAD 7,000 against an average of CAD 4,000. That's almost like 60% better or 70% better than our rest of the portfolio, which are non-Mortgage Plus clients. There's a lot to like about it.
Now, the housing market isn't really hot in Canada at the moment. You're picking up a lot of share while the housing market's a bit, I mean, presumably, if the housing market were to get stronger, what do you think the odds are that a Canadian bank would copy the program? I mean, it hasn't been copied to my knowledge. I mean, it seems to be
It has been. They're starting to.
They're starting to.
Yeah.
All right.
That's the greatest compliment you can get, right?
There you go. All right.
When others want to do what you're doing. I feel very proud of what the bank has done there.
What about? I mean, that's a pretty interesting statistic. 67% better checking accounts versus. That's actually the first I heard that, so that's interesting. Because we did see that the loan-to-deposit ratio was something you guys were targeting.
Yes.
It's sort of stalling out here, maybe a little bit backwards in the last quarter. Can you just remind everybody where you wanna take that and more to the point, why?
Yeah. I think at the all bank level, you know, it's at 104%, but it's a combination of multiple business segments, as you know. The Canadian bank for us was very important. When we started this journey, Darko, we were at 136% loan-to-deposit ratio, so completely different than where we wanted to be. That's because we had exceptional growth in our lending book, while the deposits were not the area of focus. When we started this, we said, "Okay, we wanna bring it down." It's not like we had a specific target and saying, "How do we bring it down?" It has been exceptionally successful in the first two years, right? 2024 and 2025.
Aris reminds me many times, "I'm way ahead of where you asked me to be," so, you know, you need to understand that as we think about it. They got it down to the 116%-117% range. It's ticked up a little bit now, which we're fine with. I think 124%-125%, somewhere south of 130% is good as we go through this journey. Longer term, you know, if you went beyond 2028, we want to see this continuously improve and get back to the 115%-120% range sustainably. Right now, I think it's because we got so much ahead of ourselves in the five-year plan, and you know that we were going through an RWA optimization.
We're trying to curtail some of the loan growth as they clean up the portfolio, particularly in commercial banking. Once that growth starts, it's okay for it to tick up a little bit. We feel quite comfortable.
Where are we with that? I mean, it's a great segue into commercial loan growth, right? You know, we've had a lot of optimization.
Yeah.
Are we past it? What can we expect going forward.
I think-
especially in commercial?
Yeah, absolutely. I think we're past it. We had a flat, essentially, right? No growth in commercial. Internally and externally, Scott has talked about how the pre-tax pre-provision is like 18% up. That's the outcome we are looking for. How do we improve profitability? Okay? We have to start growing, which is what we talked about in our December outlook saying we're gonna pivot to growth. Now, you didn't see it in Q1, and we knew you wouldn't see it, so it wasn't a surprise to us. The pipelines are very strong, Darko, right? When we see it. Our commercial banking head, Chris Manning, will tell me, you know, Q2- Q1, you should see some growth. Really for the H2 of the year, he thinks we'll be growing in line with the market.
Looking forward to that, and his confidence comes really from the pipelines that we are seeing in the sectors that we have a lot of strength, just to start with. Then we are also growing in other sectors where we believe we've been under-indexed in the past. You'll hear more about it through this year, but you'll see the growth.
I wanna let everybody here know that I will take any questions from the audience if anybody's interested in asking one. Please just raise your hand. We'll bring you a mic. We've got a question over here.
Hi.
You can't speak loud enough, trust me.
Hi. Just going back to the Mortgage Plus comments. I guess Darko asked if any peers were thinking about copying that. Is there any concern that, like, structurally that could lower rates or kind of cause a price war in the mortgage market, or any thoughts on that?
No, it could happen because it is the largest asset class over there. It's been the asset class that has grown in Canada for some time relative to everything. By size, it's simply the largest asset class over there. In our case, it's about discipline. You know, what we have learned from the past is we want profitable relationships. We want multi-product relationships. The backbone of Mortgage Plus that I talked about has been very popular, the 95% comment that I made. We think we'll continue on the journey because all channels seem to have adopted it very positively within the bank, whether it's a branch network, whether it's our external broker network or our internal broker network. 'Cause you see the power of the front line when they embrace it, and you see the results that just keep flowing.
I think it's gonna be a competitive advantage for us even if the market gets even more harder, but we'll be very disciplined in what kind of mortgages we'll originate 'cause we have demonstrated to ourselves that we can do it.
Thank you.
Is there any other early behaviors you can share with us on that? I mean, have you gone through a significant renewal of that book yet?
No, it's been about two and a half years.
Right.
I think by next year we'll start to, you know, flow over there. It's no different than a normal mortgage relationship, Darko. We just need to see, you know, how do we retain and enhance the relationship over there, be it the day-to-day account or other products. You know, Anique Asher who reads that business now, heads of mortgages and the team, they're very committed 'cause we watch it pretty much the entire portfolio. That's why I can talk this kind of statistics to you. We feel like if we continue on this journey, we'll have a book that'll look significantly better than, say, five years back.
Okay, maybe just continuing on. I mean, think one of the things that, you know, apart from sort of loan growth, and I'm gonna skip a couple questions 'cause I think we touched some on some of these most of the way through. Just to return to the restructuring charge.
Sure.
you know, can you actually touch a little bit on when you say fall to the bottom, you mentioned that you're gonna let some of this fall to the bottom up, then there's a reinvestment component. Can you speak to how we should think about that?
Sure
not just maybe parsing out how much will fall to the bottom line, how much is reinvested. Conceptually, one of the big themes that we're hearing a lot at this conference is all about AI and technology investment. I wonder if you can just take that and tuck that into that discussion on reinvestment and AI spend in particular.
Absolutely. Happy to do it. Little bit of perspective. Let's look at technology spend in the bank, which is people, you know, amortization, licensing fees, all these as we categorize it. In 2025, we spent about CAD 5.3 billion. Call it about 35% of our expense base, CAD 18 billion, our expense base. The components of it which require greater investment. You know, AI is on top of many things for us. We have to ensure that, you know, the foundational investments are made so that AI works as effectively as it can be. I'd call out three of those, which are, you know, large investments we are making, and we've been making for some time to be clear, but we're accelarating it. One is cloud.
Cloud has been, you know, we have announced a Google contract, and we've been quite public about it, how much we're investing. We've started to accelerate it 'cause cloud is kind of the backbone to getting AI to work most effectively in our minds. The second thing is, of course, cybersecurity. Security and cybersecurity, if I put it together, it's very important because we have to protect the data that our clients have entrusted us with. We need to get that right. The third one is data. If you don't have good data, having an AI run it is going to lead to bad decisions. I think that all of us can agree on. We've accelerated the data program as well.
All these three are what I would call the accelerated investments, which is going to increase our technology investment somewhere between 5%-10% year-over-year. Call it 5.3 versus 5.8 at the top end. It's going to most of these categories. AI, we have already started using it in places like AML, where it's easy to adapt because we're looking for, you know, transaction monitoring, those kind of things. We're using it for what we call customer contact centers. You know, simple bots, how can we help our clients, our employees more importantly. Of course, there's a third component, how can we, you know, help our employees. You know, our employees are asked to comply with multiple policies in this bank. You know, how can we make it easy for them to access it?
AI is the easiest way so that it's easy for them to navigate through the policy as they're having, you know, a conversation with a client. Very simple by nature over there, but we're learning through that. It will accelerate once we get some of these, you know, three investments at a stage where we feel comfortable, and then I think the benefits of it will come through. Where does the restructuring charge fit into this? That's how we create capacity, because we know that there have been redundant processes that we have had and we haven't looked at as closely, particularly in the Canadian bank and what supports the Canadian bank, and that's what resulted in the restructuring charge.
We talk a lot internally about how do we take a lot of the sand in the gears as we, you know, try to provide people a better client experience, and that was the foundation in which the Canadian bank looked at and said, "Here are some redundant processes that we haven't revisited for some time." That should be a net savings if this was not happening. We think this investment will happen at scale in 2026, which is why I said in 2027 that sustained benefit should fall to the bottom line and therefore to the shareholder, while some of it gets reinvested through technology primarily in 2026.
There's a couple of things that get thrown at me all the time when people ask me about Scotiabank and the technology spend. Question number one: Darko Mihelic, Scotiabank's got Caribbean, LatAm, all these places. How could these places have good data? What would your response be to that?
I think we have a lot of rich data because data goes down to, like in the Caribbean, let's pick on it, right? 100 years.
Right.
We have a lot of data. The Caribbean systems, just for everybody's benefit, has always been run out of Canada. Okay? Centralized over there. Latin America, slightly different issue. Mexico's got its own systems. Peru and Chile over there. They do have good data. I won't say they're very rich data, okay? We've been working on data for some time, Darko. It's not new. We haven't started now. Data is all about confidence at the end of the day. There are certain decisions you can make with 85% confidence level. Some decisions you need 100% or close to it. How do we use the data in decision-making is an important project that we have ongoing in the bank for some time. Then we're getting to the granularity that you're asking us about, and we feel like we actually have really good data.
How do you bring it together, synthesize it, and make good decision-making? That's what you should expect us to do.
Okay. The other question I typically get is, "Hey, TD came out with a billion-dollar number.
On the benefits?
On the benefits of AI.
Yeah.
Yeah. What is?
I wouldn't be so daring to go at this stage. Okay, I'm the CFO, right? I gotta be careful about what I say. It's easy to say and agree that there will be benefits. I mean, that's easy, right? I think we all know enough to determine that there has to be some productivity benefits over there. A little difficult to quantify it so early.
Mm.
I think, you know, probably in a year's time when we have a conversation, I think we'll have greater confidence and we'll actually be able to demonstrate it. 'Cause a lot of it is unknown, and it's happening every day. We're constantly getting educated on, okay, there might be other opportunities where AI should be able to help us. In our case, at least from my own personal perspective, I'd be hesitant to commit a number.
Maybe just switching gears a little bit because we've had a little bit of volatility here in the environment. We've now currently got you know some essentially a war with Iran going on with oil prices. Maybe you can just talk a little bit about early days with all this volatility. How should we think about that having any impact, if at all, with Scotiabank? Maybe you can talk to some direct exposures, indirect, and maybe just high level so far.
Yeah, sure. I mean, we look at it from multiple perspectives. One is about credit risk, which is the obvious one. We also look at the marketplace side. Eventually you wanna be sure that you also have operations and controls, which are, you know, at a heightened level of alert when you have this kind of stresses happening in the market. I get a report three times a day, Darko, just to give you a bit of perspective, where people are constantly monitoring it. Apart from we have run multiple stress tests we've reported to our board to show that what if, as an example. I think the easiest indicator looking at it externally, because everybody worries about loan losses essentially as a big component.
If you look at our pessimistic scenarios, the second pessimistic is supposed to be the more harsh pessimistic scenario. You've got the oil prices there. I think it's about $110 is the assumption. How it works in our models, just to, you know, focus it on PCLs, it actually benefits many industries, higher oil prices, as you know, and we do have energy exposures with large oil companies and so on where we'd see the benefit. It does impact other parts of the business. Some parts of retail get impacted. You know, it could drive up inflation, which are all the outcomes of higher oil prices. So there's some puts and takes. The easiest number I'll point to is, you know, we disclose in our financial statements, all of us do. You know, what if the pessimistic scenario were to be the scenario?
How much more ACL do you need? That's about CAD 745 million, or call it 10% of our ACL base. We are about CAD 7.2 billion. Worst case scenario, add CAD 700 million. Easily manageable. We wish it didn't happen, to be clear, but easily manageable. This thing is, again, happening in real time. We need to see how long this goes on. Is it a shock effect? Higher oil prices are not necessarily only a negative thing.
I mean, you know, but as I sit here, I think of the confluence of events. I've got a potential USMCA-
Mm-hmm
bad agreement. I've got high oil, and I've got credit, private credit concerns, all sort of this confluence. I guess the message I'm hearing from you is, so far you're not seeing any stresses.
No.
It's too early to-
I think for the first two, you say it's captured in a pessimistic scenario, right? Because it's got a 25% tariff scenario bilateral. That could hopefully be the worst case scenario. It's captured there. As far as private credit goes, our exposure is like 1% of our whole book. We've got about CAD 8 billion. It comes down to three or four things, Darko, right? I mean, anything can happen because it's still evolving. You know, we're seeing some defaults happening. For us, we are very clear getting into it. It's very important to be associated with the right people, so good managers on the other side. Their underwriting standards, both of which are covered through our due diligence. Third thing, where are you in the capital stack? And what is the collateral? Is the collateral perfected? For example, we have nothing which is retail.
Everything is, if it's United States, mid-market commercial, which is kind of corporate in Canada by size, or it's corporate. We feel very good about it, but we're not going to take our eye off the ball, right? We are constantly probing it to ensure that there isn't any weakness over there. So far so good.
With that, any key message you wanna leave with the audience?
Absolutely. I think we love the journey we've been on. We're like, you know, two years and a quarter into it of our five-year journey. We're ahead of it, and we feel very good about ourselves. We know there's more hard work, you know, to go forward, but I think the progress we have made, exceptionally good contribution from pretty much all segments within the bank, and we feel very good about our balance sheet strength, which means even if we have times of stress, we feel we're well-positioned. But otherwise, we have pivoted to growth, and you'll start seeing growth in some of the numbers you see externally. Well-positioned, I think, but more work to be done.
Okay. With that, we'll end the session. Thank you very much, Raj Viswanathan.
Thank you very much, Darko.