All participants, thank you for standing by. The conference is ready to begin. Good afternoon, ladies and gentlemen, and Welcome to National Bank of Canada's Fourth Quarter Results Conference Call. I would now like to turn the meeting over to Mrs. Linda Boulanger, Senior Vice President of Investor Relations. Please go ahead, Mrs. Boulanger.
Thank you, operator. Good afternoon everyone, and welcome to our fourth quarter presentation. Presenting this afternoon are Laurent Ferreira, President and CEO of the bank, Ghislain Parent, Chief Financial Officer, and Bill Bonnell, Chief Risk Officer. Also joining us for the Q&A session are Stéphane Achard and Lucie Blanchet, Co-Heads of P&C Banking, Martin Gagnon, Head of Wealth Management, Denis Girouard, Head of Financial Markets, and Jean Dagenais, Senior VP Finance. Before we begin, I refer you to slide two of our presentation, providing National Bank's caution regarding forward-looking statements. With that, let me now turn the call over to Laurent.
Merci, Linda and thank you everyone for joining us. It is a pleasure for me to be speaking with you on my first earnings call as the bank's CEO. Over the last 23 years, I've had the privilege of working alongside great people at National Bank. I am proud of our culture, our employees, the relationships we've built with our clients, and our constant focus on value creation. It is with excitement and a great sense of responsibility that I, along with our management team, will lead the bank. On a personal note, I want to sincerely thank my predecessor, Louis, who retired after 15 years as our CEO. Louis' leadership will have a lasting impact on all of us, the industry, and the broader-based business community. Moving on to our results. This morning, we reported a strong fourth quarter, capping off a great year for the bank.
For fiscal 2021, Pre-Tax P re-Provision earnings were up 12% year-over-year, reflecting superior loan growth, strong client asset growth, and the resilience of our capital markets franchise. Our performance demonstrates the strength of the bank, supported by our culture, the strategic positioning of our businesses, and our discipline. The bank generated an industry-leading Return on Equity while maintaining strong capital levels and prudent credit reserves. Our credit quality remains strong, and our portfolios have performed very well since the beginning of the pandemic. Regarding capital deployment, our strategy has always been driven by discipline, and that remains unchanged. Our number one priority is to generate strong organic growth while maintaining solid capital levels. We continue to see strong momentum in our businesses in this regard. Following OSFI's announcement on November 4th, this morning we announced a 23% increase to our common share dividend.
Our objective was to reset our dividend towards the lower end of our medium-term payout target range of 40%-50%, in line with historical practice. Following this increase, we remain committed to delivering sustainable dividend growth to our shareholders, demonstrating our confidence in the earnings power of the bank. We also announced our intention to launch a Normal Course Issuer Bid, providing us with the flexibility to buy back common shares as appropriate. As communicated in the past, we view buybacks as a complement to organic growth, not as a substitute. National Bank has a strong record of delivering superior value to its shareholders over time, and that will remain a key focus going forward. Turning now to the performance of our business segments for fiscal 2021. P&C Banking had a very good year, with PTPP up 10%.
Our performance was characterized by strong volume growth on both sides of the balance sheet. We expect the strength in residential mortgages to continue due to factors such as the imbalance in the housing market, labor market recovery, immigration picking up, the low interest rate environment, and strong household balance sheets. On the commercial banking side, we experienced particularly strong growth in residential insured commercial real estate in 2021. Looking forward, we see good momentum with broad-based pickup in several sectors. Wealth Management delivered solid results in 2021, with PTPP up 22% from last year. Client assets grew close to 30% and reached a record level of CAD 650 billion, reflecting record net sales across our channels and favorable markets. In fiscal 2021, our Wealth Management segment represented 24% of the bank's total revenues and generated superior Return on Equity.
We are pleased with the strategic positioning of our wealth franchise, a key growth lever and a strategic focus for the bank. Financial markets delivered solid results in 2021. Our corporate and investment banking group was well-positioned to take advantage of strong market conditions and had a record year with revenues up 24%. Global markets did well following an exceptional performance in 2020. Our results this year truly demonstrate the resilience and diversification of our earnings stream. As we enter the new fiscal year, we are seeing strong momentum in our financial markets business. Turning to our international segment, we are very satisfied with our strategy focused on Credigy and ABA Bank. Both have consistently delivered strong growth and superior returns. As we look ahead, our international strategy is unchanged. Our focus remains on these two activities. Credigy delivered solid returns in fiscal 2021.
Asset growth has been picking up in recent months, and we expect double-digit asset growth in 2022. Revenues are expected to be relatively stable in 2022, given the CAD 26 million gain on the sale of a portfolio in the first quarter. This translates into high single-digit revenue growth for 2022, excluding that gain. ABA Bank had another strong year with revenues up 24%, loans up 31% and deposits up 34% on a year-over-year basis. Conditions have greatly improved in Cambodia. Lockdown measures have been lifted, and borders have reopened. Looking ahead, we expect double-digit growth for 2022. I would like to share a few thoughts on the economy.
While the pace of the economic recovery remains dependent on the path of the pandemic and the emergence of new variants, Canada is doing well compared to the rest of the world. Employment has regained all of the ground lost after only 19 months, the fastest recovery in the last four recessions. Supply chain disruption and inflation are risks under current conditions, but high commodity prices are a strength for the Canadian economy. In addition, household savings are high, providing a good cushion to absorb a rise in interest rates in 2022. Quebec remains well-positioned given the diversification of its economy and the resilience of its households, which will continue to benefit from the fiscal flexibility of the provincial government who have just introduced more stimulus. The current business environment is positive.
We are optimistic, but remain prudent in our approach, given uncertainties related to the pandemic, inflation, and labor shortages. Based on what we are seeing today, our base case is that we will achieve mid-single digit PTPP growth for fiscal 2022. To recap, the bank delivered outstanding results in 2021, and we are well-positioned heading into 2022. The bank's sustained performance reinforces our plan to continue to build on our strength, our culture, our strategic positioning, our discipline when it comes to capital, risk, and cost, and our commitment to performance. These have served us well and will continue to be central to our decision-making in the future. Now, let me outline some thoughts on where we plan to put more emphasis as we look ahead. First, our culture remains critical.
We are committed to investing in our people and providing winning conditions for our employees. We wanna offer our clients the best service and advice. We will continue to focus on deepening relationships and gaining market share, both in our core Quebec market and across Canada. We are also focused on continuing our transformation. Digital innovation and automation are key to enhancing client experience and gaining operational efficiencies. As we continue to grow all our segments, we are looking to further leverage our wealth management and commercial banking franchises. We like our strategic positioning in these businesses, as well as their growth potential. We believe in collaborative models between our businesses, and our plan is to do more in the coming years in all of our client segments.
Sustainability is also a key part of our strategy across the bank, and we will continue to support our communities and our clients in the transition of a net zero carbon Canadian economy. Finally, we will continue to deploy relentless energy towards a diverse and inclusive workplace where people can develop and thrive. The bank is in great shape. It is well-positioned to generate solid growth and to deliver superior returns to our shareholders. The National Bank team is excited about the future and ready to adapt to the challenges and opportunities ahead. On that, I will now turn it over to Ghislain.
Thank you, Laurent and Good afternoon, everyone. Turning to page eight, the bank delivered a very strong performance this year. Our Pre-Tax P re-Provision Earnings grew by 12%, reflecting strong performance across the bank and positive operating leverage of 1.2%. All business segments performed well in 2021, reflecting the resilience and diversification of our business. Expenses were up 9.8% in 2021 due to the strong performance of our teams throughout the bank, which resulted in higher variable compensations. Excluding variable compensation, expenses were up 4%, driven by talent and technology. We expect continued pressure on costs as we enter 2022 in the context of inflation, especially on wages. Cost management continues to be a priority at the bank.
Over the past five years, we have improved the efficiency ratio by more than 500 basis points, and over the same period, we delivered positive operating leverage every year. The entire management team remains highly committed to transformation and long-time discipline approach to cost management. Looking ahead, we are confident that we can achieve positive operating leverage in fiscal 2022. However, operating leverage may be pressured in the first quarter due to the timing of certain expenses and a low expense level in Q1 of last year. We continued to move forward with our transformation in 2021 as we adapt to the changing needs of our customers and reinforce our culture of change and operational agility. In fiscal 2022, our main focus will be on enhancing client experience, supporting new business initiatives, and simplifying our systems and processes.
Now turning to capital on page nine. The bank ended fiscal 2021 in a solid position with a strong CET1 ratio of 12.4%, a robust risk-weighted asset growth for the year, an industry-leading ROE, and significant credit reserves. In the fourth quarter, net income generation added 46 basis points to our CET1 ratio, reflecting the solid performance of our businesses as well as our strong credit performance. Excluding the impact of foreign exchange, risk-weighted assets growth amounted to 17 basis points of CET1. As anticipated, the acquisition of Flinks reduced our CET1 by 11 basis points. Now turning to page ten, our total capital ratio stands at 15.9% this quarter. Our liquidity ratios remain strong with a LCR of 154% and a net stable funding ratio of 117%.
The bank delivered an outstanding performance in 2021. All businesses performed well, contributing to a superior Return on Equity of 20.8%. With solid capital levels, a strong credit position, and diversified growth levers, the bank enters 2022 from a position of strength. On that, I'm turning the call over to Bill.
Merci, Ghislain and Good afternoon, everyone. I'll start on slide 12 with a look back on the credit performance for the full year of 2021. We finished the year with total PCLs of just CAD 2 million, driven by impaired provisions of 11 basis points and a release of performing provisions of nine basis points. This strong performance reflects three factors. First, the solid footing with which we entered the crisis, with strong credit quality, a defensive positioning in our product and sector mix, and a resilient geographic footprint. Second, the strong economic recovery, which has already brought Canadian employment back to pre-pandemic levels amid a supportive monetary and fiscal policy backdrop. Finally, our proactive approach to building and maintaining prudent allowances in the face of significant uncertainty.
We were pleased with this performance in fiscal 2021, and while the pandemic continues to generate uncertainty, we believe our risk profile and prudent allowances continue to position us well for the year ahead. Now, looking at the performance in the fourth quarter. The positive trends that began earlier last year continued across the portfolio last quarter. Impaired PCLs declined to CAD 19 million or 4 basis points, driven by retail and international provisions remaining at cyclical lows, a decline in corporate banking provisions quarter-over-quarter, and a second consecutive quarter of net recoveries in commercial banking. Performing loan provisions saw a net release of CAD 58 million or 13 basis points. Updates in portfolio quality and economic scenarios were the main drivers of performing provisions this quarter.
Both our retail and non-retail portfolios benefited from releases, while good portfolio growth in the international sector generated a performing loan provision of CAD 3 million. Now looking ahead to next year, for impaired loan provisions, we should begin to see a return to more normalized levels during the year. In both retail and international portfolios, this normalization is likely to happen over the next year and into 2023. In non-retail portfolios, we also expect some normalization, recognizing that impaired provisions or recoveries can be lumpy from quarter to quarter.
Given the positive trends we saw at the end of 2021 in terms of delinquencies, formations, and savings rates, impaired PCLs could remain unusually low in the early part of next year. For the full year of 2022, we are targeting a range in impaired PCLs of 15-25 basis points, and currently expect to be towards the bottom part of that range. Our performing loan provisions should continue to be driven by changes to macroeconomic scenarios, portfolio growth, and migration. Absent a significant deterioration in the macroeconomic outlook, we would expect additional releases from our performing allowances next year. Turning to slide 13, our total allowances for credit losses declined by CAD 70 million quarter-over-quarter and remain about 52% above the pre-pandemic level.
Performing loan allowances declined by CAD 59 million, taking our cumulative release to 38% of the performing allowances we built during the pandemic. The remaining CAD 879 million provides strong coverage of impaired PCLs. Impaired loan allowances declined by CAD 9 million quarter-over-quarter and provide good coverage of gross impaired loans. On slide 14, we have provided some key metrics that demonstrate the adequacy of our allowances. We remain very comfortable with the prudent level of our allowances. Turning now to slide 15. Our gross impaired loans declined to CAD 662 million, or 36 basis points in the quarter. Total formations also declined, driven by net repayments in the commercial and corporate loan portfolios. Both GILs and formations are well below their pre-pandemic levels, so we could expect some normalization next year and into 2023.
On slide 16, the mix in our Canadian residential portfolio remains stable, with 33% being insured and 54% being in the province of Quebec. In the appendices, you'll find further information on our loan portfolio and market risks. In conclusion, we have been very pleased with the performance of our loan portfolios this year. We recognize that uncertainty remains in the future path of the economy. However, our disciplined approach to risk, our portfolio's defensive positioning, and our prudent levels of allowances, we are very confident that we're well-positioned to continue delivering strong performance in the year ahead. On that, I will turn it over to the operator for the Q&A.
Thank you. We'll now take questions from the telephone lines. If you have a question and you're using a speakerphone, please lift your handset before making your selection. If you have a question, please press star one on your device's keypad. You may cancel your question at any time by pressing star two. Please press star one at this time if you have a question. There will be a brief pause while the participants register for questions. Thank you for your patience. The first question is from Doug Young from Desjardins Capital Markets. Please go ahead.
Hi. Good afternoon J ust on Canadian P&C banking, I mean, commercial loan balance is increasing 18% year-over-year, 5% quarter-over-quarter. I guess I have a few questions around this. One, can you dig a little bit more into what drove the growth? Then second, as it relates to NIMS, your commercial loan growth clearly outpaced your mortgage loan growth, but I think there was an indication that the NIM compression was mix-related. I'm just trying to get a little bit more information or a little bit more color as to why mix would have had such a big impact on NIMS, given, you know, the commercial growth relative to mortgages. There's something else that's going on within the book. Thank you.
Hi, Doug i t's Stéphane so you're right. The growth was phenomenal last year at 18%, and it was largely driven by the book of insured real estate. That book has almost doubled over the last year. We took opportunity in the market, and we wanted to grow that book outside of Quebec particularly. Obviously those loans call for much smaller premiums because of their insured nature. They still provide an excellent RAROC, and that influenced the loan margins substantially. That element, combined with the deposit mix, if I may say, actually, explains the NIMS for the last year.
Maybe just what is your outlook for NIMS as we look out? I mean, I know there's a lot of moving pieces in it, but you know, if you had a crystal ball, like what do you, how do you think NIMS unfold through fiscal 2022 for Canadian banking?
For Canadian banking, Lucie, you wanna?
Maybe I can jump in. Thank you for the question. Obviously expected increases in interest rates are positive for the P&C NIMS, but NIMS are also impacted by other factors than interest rate and business mix and market competitiveness being two important ones. I would stay prudent and say that it's early to see clearly where NIMS will go in 2022. In 2021, we grew the balance sheet, kept our pricing discipline and risk discipline, and generated net interest income growth of 6% despite a 7 basis points decline in NIMS. Our objective is really to continue to generate organic growth, grow the franchise, and deliver consistent NII growth. For Q1, though, we expect NIMS to remain stable on a sequential basis.
A lot of that, Doug, is gonna be contingent as well on the deposits. What's gonna happen with commercial deposits among other things? They've been really sticky up to now, but, I mean, all our peers have the same consideration and uncertainty.
No, that's fair and then, Laurent, maybe I could just. You know, when I look at the dividend and I modeled it like you could have increased it and still remained at the bottom end. You know, I was thinking the dividend increase could have been a little bit higher. I'm just trying to get a sense, is this the step up, one big step up, or is this kind of a gradual step up, and then every second quarter you're gonna continue to increase dividends and you've left yourself some room to further push the dividend up? I'm just trying to get a sense of that.
Thank you for your question. I mean, we've always positioned it towards the lower end of the range historically, 'cause that provides us with flexibility. Look, obviously, the objective that we've always had is to maintain you know, sustainable increases. You know, we do have, obviously, confidence in the earnings power of the bank to do that. Yeah, that remains the objective on the dividend side.
You're still every second quarter is the plan to increase?
That's the plan, yes.
Oh, okay. Just lastly, maybe on PCLs. Bill, you know, the 15-25 basis point wide range, you're kind of indicating more towards the low end of that. What would have to happen for you to hit 25 basis points of impaired PCL?
Well, Doug, thanks for the question. You know, I think that you've seen us remain prudent through the whole pandemic in terms of our guidance, and we try to give you insights based on the facts that we know. Certainly, our expectation is to be close to the bottom end of that range. What would have to happen to be at the top of the range would be a significant deterioration, and one that we certainly don't see, and that's why we give you guidance towards the low end.
I think last year you will have seen that from the beginning of the year through the year as we got more visibility on the path of the pandemic, we did adjust our range and we'll see how it goes this year. We'll try to give as much visibility as the facts allow. You know, from where we sit now, the portfolio trends, the macro outlook, the level of uncertainty, it's really. We feel very confident that the lower end of the range is the target. If there isn't a significant deterioration in the macro outlook, we would expect to see continued releases in the performing allowance.
Great. Thank you.
Thanks.
Thank you. The next question is from Nigel D'Souza from Veritas Investment Research. Please go ahead.
Thank you. Good afternoon. I wanted to follow up on the line of questioning on your allowances. You know, I'm wondering why you haven't been more aggressive in releasing the current performance allowance. The reason I ask that is when I look at your disclosure on 100% weighting to your base case allowances, it's closer to CAD 600 million. When I look at the 100% weighting to the pessimistic, it's closer to CAD 1.3 billion. Your current allowances are somewhere halfway in the middle between your 100% base and 100% pessimistic, which suggests a fairly higher or substantial weighting to the pessimistic scenario. That's one with lockdowns and double-digit unemployment and negative real GDP growth.
I'm just trying to get a sense of, do you actually think that's a possible outcome where there's material risk or probability of that happening? Maybe you can explain why you're still apparently holding those higher reserves and weighting the pessimistic scenario higher.
Yeah. Thanks, Nigel. I think I'll just go back to my comments from last quarter, which were that we haven't been through a pandemic cycle before. In this environment, uncertainty remains high, so we wanna remain prudent.
Okay. Fair enough. Maybe I could switch to another question on how you're thinking about pricing your assets and loans given current interest rate uncertainty. You know, and I ask that because, you know, yields, bond yields for government bonds, for example, are probably reflecting interest rate hike expectations. The spread, do you see that in the spread between the variable rate and then the fixed rate for mortgages? How do you think about pricing your products in this environment where there's considerable interest rate uncertainty? Are you waiting more on the policy rate pathway to have some visibility, or are you looking at what the market yields are telling you?
Nigel, this is Laurent. Could you just be a little bit more specific? Which product are you talking about specifically?
I think we could maybe focus on residential mortgages, but if you could touch on your commercial products, that'd be helpful too.
It's Lucie. Obviously since Q2, variable rates have been most popular at origination, giving the difference in price, in pricing that we see. I mean, here we follow consumer behavior and consumer appetite on interest rate volatility. With what we see right now, it's also a positive on the margin side.
On the commercial side, I'll say, Nigel, that we've got a balanced portfolio, so pricing strategy on products is not gonna be a function of whether we've got rising interest rates or not, but it's actually what may happen is, much like Lucie mentioned, is clients moving on for the first time in maybe 10 or 15 years, moving on to longer terms than before, that call for higher spreads. We've seen that in the market of the last three to four months as the discussion on potential rate hikes has emerged.
Okay, that's helpful. Thanks for the comments.
Thank you. The next question is from Meny Grauman from Scotiabank. Please go ahead.
Hi, good afternoon. I have a question on the run rate earnings power of the financial markets business. You know, I think we've talked about this before, how we should think about the run rate earnings power in that business as being higher after the pandemic than pre-pandemic. I just wanted to get your updated thoughts on that, especially in the context of thinking about 2022, but beyond as well.
Yes, Meny, thanks for your question. As you see, you know, looking forward is always, you know, more an art than a science. But I can say right now is that, you know, for CIB, we saw 2021 was a record year for us, okay, reaping the benefits of the past investment. We expect the activity level to remain elevated. Our M&A pipeline is very strong after a softer August and September, and momentum continues on the ECM, sorry. Global markets, you know, the trading activity level picked up in light of lingering COVID and economic uncertainty, meaning increased volatility. We will continue to operate in our risk appetite.
I can tell you, the fourth quarter was kind of tough for us in the sense that August and September client activity was quite low compared to the rest of the year. Since mid-October, we saw a huge pickup in activity, and it's quite interesting for the coming months. Hopefully, things will remain as they are right now. A lot of volatility, a lot of client presence in the market, and we're gonna be ready for that. That being said, you know, as demonstrated in the past, we tend to be agile. We are pursuing a further diversification of our revenue stream. We invest quite a lot in the business in the last year. That's why you saw expenses going up.
That's not something that we're used to. Not least, cost management is a constant focus, and we continue to target an industry-leading efficiency ratio in the low 40%. That's what we're aiming for. I hope it's answering a little bit your question.
Yeah. Maybe just to follow up, you know, the guidance was given about mid-single digit Pre-Tax P re-Provision earnings growth in 2022. How does Financial Markets line up? I would imagine at the lower end of that. I just wanted to check.
Well, it's probably in the middle of that, same as the bank, you know. Mid-single digits, this is what we're aiming for on a constant basis, I would say. Some years are better, some other years is less, but that's what we're aiming for.
Just broadening that out into the other business segments, how does that Pre-Tax Pre-Provision earnings guidance look for the P&C business and for Wealth and for the Specialty Finance business?
Look-
In terms of being above or below.
Manny, it's Laurent. I'm not prepared to go into specifics into each and every business. I think overall, the fact that we gave some guidance here means that we're quite positive in all of our businesses for next year. You know, P&C, we still see some good momentum on mortgages. You know, we're seeing a bit of a pickup in cards with the discretionary spend going up. The commercial lending trends that you've seen are still strong. Wealth, you saw our performance this year. That momentum is still there. You know, I think Martin has always indicated in the past that, you know, we target double digit earnings growth.
That hasn't changed in our Wealth business. You just heard from Denis on our Financial Markets business. As for the international, we're very well positioned. We have, you know, ABA in an economy that's a high growth economy. We expect double-digit growth in 2022 for ABA. For Credigy, well, we have a very good visibility on asset growth, so it should be also a good year for Credigy.
Thanks, Laurent y ou know, we always try and get more. I'm just trying to basically understand, you know, which businesses are gonna drive that number and which are gonna lag.
I understand.
... I think that's the detail.
Thank you. The next question is from Paul Holden from CIBC. Please go ahead.
Thanks. I wanna go back to the mortgage conversation. I guess the specific question I wanna ask is, did competitive forces at all play a role in the lower NIM this quarter, and particularly the impact it's had on new mortgage originations?
Yes, it's Lucie. We all know that the mortgage business is probably one of the most competitive one. Sometimes navigating in that environment, like Denis said, is half art and half science. What we see, what's important for us is to send a consistent message to our stakeholders on our price positioning and avoid stop-and-go messages. Our strategy is not to lead with price, but be more of a smart follower with a competitive positioning for our clients. We've seen some peers with superior mortgage growth being more aggressive since last summer. We always try to remain very disciplined on our approach, as you know. In the past quarter, we've seen some margin compression due to competitiveness for sure.
In the last two quarters, there's been some lag between cost of funds increase. An Increases in client rates. There's a bit of that, of what we see right now.
Understood. That's helpful. Then I also want to follow up on an earlier discussion around the growth in business deposits and the impact that that's having on NIM. I guess the first question there would be: What factors could reverse the growth in business deposits? Is it simply business customers getting more comfortable with the macro environment, starting to invest again, or maybe there's other factors at play? Then, two, if those deposits do reverse, should we simply think about that as positive to NIM, but perhaps a net negative to NII overall?
Thanks, Paul. The first element, yeah, the use of these deposits and any potential reduction will likely come firstly from positive outlook from Canadian businesses reinvesting. The second element, obviously, we need to highlight as well the supply chain issues. A lot of Canadian businesses are not investing in their working capital the way they should be at the level because there's not availability as it should be. We're seeing that as well on the drawings in the operating lines of credit. It's starting to creep up over the last two or three months, but it remains very low relative to normal pre-pandemic levels. I think the deposits and drawings on HELOCs will go hand in hand. While one will go down, the other one will go up.
That's the first element. With regard to the impact on the NIM, it's been largely liquidity premiums on deposits that affected the NIMs in the last year. Overall NIM for P&C could be affected, although we have an outlook of stable by the asset mix overall as these deposits move down.
Great. That's helpful. Thank you. Final question from me is with respect to inflation, again, something that's already come up in this call. Just, I'm curious, is there a risk at all to your PTPP, guidance and expectation around operating leverage if wage inflation accelerates more than any of us would expect? Or are there offsets in the expense base that you could use to offset that type of scenario?
This is Laurent. Overall, you know, we view, you know, a little bit of inflation and obviously increases in interest rates fairly good for our business this year. Now I think what's important is the mindset that you have around the table here in terms of discipline on cost at all times. Also a mindset that, you know, constantly what delivers positive operating leverage year-over-year. You could see from time to time, you know, timing issues, which could be the case at the beginning of the year. I mean, we're fairly confident at this point in time, I would say, in terms of, you know, inflation anticipation and our business growth.
You know, obviously we're very focused on building our businesses. On that, as I mentioned before, we feel pretty confident and our outlook is positive in terms of revenue growth.
Okay. I'll leave it there. Thank you.
Thank you. The next question is from Scott Chan from Canaccord Genuity. Please go ahead.
Thank you. Good afternoon. So wealth management is now, you know, a larger portion. I think you said it, 24% of earnings. Then just digging down a little bit on the revenue side. When I look at fee-based revenue, which is a large portion of the revenues, is it fair to say a lot, most of that line item is based on assets or asset growth or market?
Hi, it's Martin here t hanks for the question. You're right that fee-based is an important source of revenue. I always say that looking at AUA and AUM is the key driving indicator for this. You know, the balanced portfolio was up about 17%, and you see how much we grew AUA and AUM. That gives you a very good indication of how we've performed and how we have gained market share in many of our businesses in 2021, and we're really happy about that performance.
Just to follow up, so your fee-based was up 21% year-over-year annual, and your AUA and AUM was up 28% and 34%. You set a record in net sales, and we can kind of see that chart that you showed. What can you kind of describe what your maybe not secret sauce, but why you've been outperforming, you know, other financial institutions in terms of wealth management and asset management? I think you called it distribution, but if you've got anything else, that'd be helpful. Thanks.
I think there's a long explanation to this, but the industry focuses a lot on AUM, whereas we have a very large AUA business. For us, the AUA is key. You know, there's a lot of differences in basis point you can capture. As there are different types of AUM and different types of AUA, but it's a mix of all of this that explains you know, the variation. Overall, we're gaining market share. NBF is doing exceptionally well, growing their AUA. It's been a really, really good year. NBIN keeps producing amazing numbers. Those two businesses are the main drivers of our AUA. On the AUM front, yeah, record net sales.
We've distinguished ourselves if you look at many different numbers like Investor Economics or so on, and we're doing really well there too.
Okay. Thank you very much.
Thank you. The next question is from Gabriel Dechaine from National Bank Financial. Please go ahead.
Good afternoon. Just wanna go back to that PTPP guidance. I know I don't wanna go into too much detail on segmented views, but just maybe more of a seasonal view, similar to the comments Ghislain made about operating leverage maybe being a bit softer in Q1 due to the timing of expenses. Is that gonna be reflected in maybe a ramp up of PTPP growth over the course of the year or what?
Well, Gabriel, this is Ghislain. What I mentioned is you probably remember that in Q1 2021, that was, I think in terms of expenses, our lowest quarter of the year. We had probably one of the best quarter in terms of revenue of the year.
Mm-hmm.
especially because of the gain of Credigy. Of course, we should not expect the same kind of PTPP in Q1 this year. The rest of the year should be better than Q1. Q1 would be a challenge, I would say.
Right.
Even though, I mean.
Sorry, go ahead.
No, no, it's okay. It's okay.
I was just saying, like, your comment on operating leverage applicable to PTPP as well. A question about the Flinks, actually. You know, what does this you know enable for the bank strategically, or as we you know are heading down in the future anyway to an open banking system in Canada, you know, what advantages of being bank-owned does that business have?
Uh, I'll-
Generally, what does it provide you in that sort of, you know, sort of environment we're heading to? What are the advantages of, if any, of being owned by a bank or-
Gabriel, I'll start. Maybe it's a bit early also, but I think I answered that question in the last call. For us, it's a positioning in the fintech market. It's more of a fintech play. Flinks is a data aggregator that provides services to over 250 fintechs in the Canadian market and the U.S. market. We were early investors in Flinks in 2016- 2017, and we gradually increased our position. For us, it's look, we're looking at the fragmentation of financial services, the growth that they've had during that period of time. We obviously think that there's more potential going forward given that, you know, that fragmentation has really increased in the U.S. and could potentially increase more.
It's more right now, you know, an option that we have.
Maybe I can add to that, Laurent. Gabriel, for sure the open banking discussion is still in its infancy in Canada, but it is happening out there. It is there. Flinks being the main data aggregator in Canada is also very well connected with the current fintech ecosystem that is out there. Certainly the Flinks acquisition gives us opportunities and also options from an IT perspective.
I mean, it's, I don't wanna overblow it or anything, but I did get a few investors asking about that today, so. All right. Thanks.
Thank you. The next question is from Lemar Persaud from Cormark Securities. Please go ahead.
Thanks. I just have a point of clarification for Laurent. Laurent, I think I heard you mention that you're expecting double-digit growth at ABA. Just to be clear there, are you referring to earnings growth or something else like loan growth?
This is Ghislain here. I can answer that. Just before to go there, we have very positive things to say about ABA, especially the country with the pandemic. As Laurent mentioned at the beginning, there's no lockdowns anymore, borders have reopened, and there's no more quarantine for fully vaccinated travelers. Which is a very good news, especially for the tourism sector. Another good point also is manufacturing, retail, construction sectors are almost back to where they were before the pandemic, which is once again a very good thing. Cambodia recently signed a free trade agreement with Asian countries, including China. We think that it could be positive for Cambodia for the Cambodian economy in the coming years.
To go to your question, we see very good momentum for ABA in the coming years and especially for 2022. We expect another year of double-digit growth in terms of loans, deposits, revenues and also net income.
Okay. That answers that. You know, one thing that really stands out, just sticking with ABA, is the significant decline in the efficiency ratio. Went from the low 40s to the mid-30s in 2021. Could you talk a bit about what drove that improvement, and how is it expected to trend over time? I guess, maybe some comments on the earnings power of size, looking at not just 2022, but even beyond then. I guess where I'm going at is you look at the start of 2020, earnings are in the $40 million-$50 million range a quarter. Mixed ratio is in the low 40s. We go through COVID, the efficiency ratio drops to the low 30s and earnings have gone up to the 70s.
You know, I'm just thinking about, you know, what's the outlook for ABA specifically?
Yeah. Once again, this is Ghislain. The first part of your question, it's related to the pandemic and the fact that, you know, activities have slowed down over the last 18 months. There was, you know, few investments. This is basically why they have this. Well, and also they worked on their expenses during the pandemic. This is why you saw a decrease or an increase or an improvement in terms of efficiency ratio. But this would go back probably, you know, in the 40% range, in 2022, in the coming years, because they will resume, you know, their investment, especially in their retail network. This is for the first part.
The second part, we always said in the past, you know, that over time, what we're seeing for ABA is around 20% plus growth every year. We think that it's feasible, knowing that, you know, the country is still underbanked. There's a favorable demographic there. You know, 65% of the population is under or below 35 years old. We think the country is very well positioned in Southeast Asia. We think that it's feasible. I think that the 20% that we gave before still holds for the future at this point of time.
Great. Thanks. That's it for me.
Thank you. The next question is from Darko Mihelic from RBC Capital Markets. Please go ahead.
Hi. Thank you. Good afternoon. I think I'm gonna start with a philosophical question for Laurent. Like your first quarter as a CEO, I would have never expected a big change in anything. This really is aimed at the moratorium on emerging markets. What I'm just curious about is, you know, do you generally like that business? You know, do you have a team of people scouring emerging markets for opportunities? Do you ever see a point in time where you would reverse course and remove that moratorium? Just wanna understand sort of your mindset when it comes to the emerging markets business and capital deployment there.
Thank you for your question, Darko. I mean, I think I was pretty clear in my script. We have a team that manages obviously our investments, but it is currently not a priority to invest outside of our current investments. We're very happy with, as I mentioned, our ABA franchise, obviously Credigy as well. The focus is really on ABA outside of Credigy to really you know keep growing our bank in Cambodia, solidify our position there. You know in the near future, there's definitely from my side and the management team, there's no intention on investing abroad at this point in time.
Okay. I'm gonna press you a little bit on it, and the question is why. You know, I understand that right now you may not wanna do it, but you've got a team scouring. There could be great opportunities. I'm just trying to understand the mindset.
It's a question of focus. You know, if you just heard Ghislain talk about the potential growth for ABA. We wanna make sure that we, you know, grow that the ABA bank prudently, that you know we make sure that we follow that growth as it go through economic cycles potentially. That's really where our mindset is. And as you heard it on, you know, as I talked a little bit about, you know, the future, you know, one of the things that where we see a lot of potential is actually here in Canada and in our domestic franchise. We wanna also put, you know, more emphasis in terms of growth in some of our businesses in Canada.
You can keep challenging me. I have no problem with that, but I think we're very comfortable with our current business mix.
You know, the strategic choices that we've taken within those business mix, we're very, very comfortable with that. You know, we're gonna remain disciplined in terms of capital allocation, risk management, cost control, you know, and we're gonna commit to performance as we always did, you know, and that you should not expect that to change, with us.
Okay, great. Thank you for that. I just wanted to sort of switch gears a little bit. One of the things, you know, kind of I've only got three banks to compare against so far, with respect to Q4. One thing that does set your bank apart is, you know, risk-weighted asset growth. Total risk-weighted asset growth at NA, 10% this year, Scotia flat, Royal effectively flat. Now one of the things that we saw at the other banks though is there were opportunities for modeling, sort of updates, changes. Are there any opportunities like that for NA at all? Maybe this is a question for Bill or for Ghislain. Is there any opportunity for model updates, parameter updates, any sort of help on the risk-weighted asset side?
Because a 10% growth in this year, I can only imagine as the economy takes flight, how much RWA growth you could achieve unless of course there are opportunities to reduce RWA density.
Thanks, Darko. Maybe I'll start off. It's Bill. If Jean or Ghislain has any follow-ups they can add in. Thanks for pointing out. We were really pleased with the growth in RWA coming from the growth in organic business, and that includes commercial banking, includes financial markets, both on the lending side, but also on the risk management products and the derivative side. Lots of client activity, growth in the franchise, franchises generating increases in RWA. I'll point out as well that that happened with a superior ROE. The opportunities to grow organically, loan growth RWA at really good ROE levels, we would like that to continue into the new year.
Certainly there are always potential opportunities with data refinement and model updates that could give some tailwinds to the RWA calculations. However, I don't have anything to signal, and I'll just remind you that given the results that we've seen on the revenue side and the risk/reward equation on that RWA growth, we don't see it as an impediment for continuing the future growth. Does that answer your question, Darko?
Yeah, that's great. Thanks very much for that, Bill.
Thank you. As a reminder, you may press star one if you have a question. The next question is from Sohrab Movahedi from BMO Capital Markets. Please go ahead.
Yeah, thank you. Actually, maybe I can just pick up where Bill left off there. When you and Darko, I guess, left off there. When you, Bill, give us this outlook on impaired PCLs, for example, you gave it to us in basis points terms. What sort of loan growth is implicit in that guidance?
You're looking at the denominator, I suppose.
Yes.
Of that calculation.
Yes.
Thanks for the question, Sohrab. The denominator, the potential delta in the denominator isn't the biggest certainly factor in that equation. It's really how I would frame the 15-25 basis points is if you think historically pre-pandemic, we were within that 15-25, mainly on the top end of the range. At some point in 2022- 2023, we should get back into the normal run rate in pre-pandemic.
The variability or the uncertainty in terms of the macro environment is certainly got more of an impact than the denominator of the calculation.
When you combine that with, you know, with how the performing kind of allowances may also contribute to the total number, I think if I read your message correctly, you know, there could still be some performing allowance releases.
That's correct.
I guess what I'm trying to get a feel for, Bill, and I think, you know, in quarters past, you guys have been pretty clear that you're comfortable growing into your allowances. I'm just trying to kind of get a sense of, you know, how much of that guidance implicit in your kind of performing is like how are you growing into it or are you releasing it? I guess what I'm trying to figure out how much is happening in each one of those buckets.
Maybe both, Sohrab, is the fuller answer. Both. I think we saw even in the fourth quarter growth in performing allowances from international, as growth in the assets were quite strong. Yet we had, excuse me, releases from the performing allowance. I think if you look at the coverage ratios kind of in indicators about how the adequacy of the allowances that we have, I think that you can see there is room for both growth in the balance sheet and, as uncertainty is removed and gets smaller, certainly some releases coming from those allowances as well. Does that help?
Okay.
Sohrab?
Maybe that's helpful. Yeah. I know we're over time, but if I can just come at it from a slightly different angle here. Laurent, you mentioned mid-single digit Pre-Tax Pre-Provision growth at the total bank level. What sort of balance sheet growth is implicit in that assumption?
I think it's around 7%.
Okay.
Sohrab, just one further addition, as I see where you're going. The nature of the growth is important as well. Just like for RWA, growth in residential mortgages that doesn't have the same consumption or insured real estate in Stéphane's world. It does depend on the nature of the growth in terms of the risk density. You know, you think about risk density, you can think about ECL density as well.
Perfect. Can you just remind us what's ABA's market share in Cambodia?
Sohrab, this is Ghislain. It depends on the products, but they are third. They are the third bank, you know, in terms of asset size, in Cambodia. But for some digital products, they are either second or first.
Hey, Ghislain, am I right that a few years ago when you had a ABA kind of discussion with the investment community, they would have said they're probably ranked fifth in market share by assets?
I think that when we first invested in ABA, they were like seventh or eighth. At the moment of the Investor Day, they were fifth, and now they're third.
Thank you very much.
Thank you. There are no further questions registered at this time. I would like to turn the meeting back over to Mr. Ferreira.
Well, thank you very much, everyone. Happy holidays to all and we'll speak to you next quarter.
Thank you. The conference has now ended. Please disconnect your lines at this time, and thank you for your participation.