In a 24-year career with royal Bank of Canada (RBC), David McKay has learned a lot about the delicate business of dealing with people and their money.
When he was working in commercial account management, for instance, the tough realities of running a business were evident every day. “You learn a lot about different ways to make money,” McKay says, “and how different people work. And you see the downside and some of the things that don’t work. And you see the upside. It was a fantastic training ground.”
McKay’s more recent achievements leading RBC’s domestic retail bank, the dominant player in Canada, have not gone unnoticed. In May, Retail Banker International named McKay, 48, as its Retail Banker of the Year and also named RBC as North American Retail Bank of the Year. The British banking industry publication praises McKay for outstanding performance and leadership, as well as the bank itself for achieving sustainable, profitable growth during a period of economic adversity.
The award, says McKay, who has been group head of Canadian banking at RBC since 2008, is a testament to RBC’s ability to continue to win new business, even during challenging times. During the most recent quarter, RBC’s Canadian banking division posted $937 million in profit, up by 4.7% vs the same quarter last year. Volume growth, comprising personal and business loans and deposits, was a healthy 9%, compared with the average growth rate of 6% for RBC’s Big Five bank peers.
But RBC – and the rest of the Canadian domestic banking industry – is facing a tougher business environment ahead as overstretched consumers look to pay down debt and economic uncertainty continues to hang overhead. Indeed, banking analysts have been suggesting it may be difficult for Canadian banks to match the strong earnings of the recent past.
“We see how the consumer is spending,” McKay says. “And we certainly see it in the consumer attitude toward debt – that they are starting to tap out. We’re hitting that zone of tipping point, and growth in credit is down – well below historical averages.”
McKay says RBC’s continued growth has a lot to do with the bank being able to leverage its size and scale advantage to solidify its already strong market positions.
The growth has also come from a commitment not to rest on laurels, he says, and to look for ways to reinvent ways of doing things, even as the bank does well.
“As long as we spend [our resources] smartly,” McKay says, “we’ll be able to consistently do more and better things than our competitors and the gap will widen.”
Among RBC’s recent initiatives, the bank signed a partnership earlier this year with Toronto-based Shoppers Drug Mart Corp. to offer a co-branded banking account and debit card. The partnership will see RBC install ATMs in Shoppers outlets, and will allow the two companies to work together on other retail projects.
RBC has also poured resources into expanding its branch network, opening new locations at a rate of 20 to 25 branches a year, bringing its total to about 1,230. All new branches feature an open-concept layout that borrows from non-bank retailers such as The Apple Store and The Gap to help promote engagement between the customer and bank employees. Says McKay: “We are looking to create opportunities, manned by our employees, to stop and have a conversation [with our customers].”
A welcoming branch is also conducive to selling financial advice to customers, McKay says. The domestic bank works closely with RBC’s wealth-management division to transfer clients among the services that the bank offers, from account managers to financial planners to investment advisors and its private banking services.
McKay’s position gives him an inside perspective on how Canadians are doing financially, and the picture appears to be mixed. Credit card balances are declining, indicating that consumers are interested in tamping down their debt levels.
But real estate is an area of some concern, McKay says, particularly in large markets such as Toronto and Vancouver, where recent data suggest that a cooling trend may be beginning. However, McKay doesn’t believe that there will be a dramatic collapse in Canadian residential real estate values.
“Low rates are fuelling a bidding war on a supply/demand imbalance [in those markets] right now,” McKay says, “and that’s going to correct itself. And higher rates will correct [that situation], but we won’t get higher rates until we see more stability in Europe. You’re going to see some type of correction when rates go up, but not a large correction because the demand is still there.”
Of greater concern to McKay is that Canadian businesses again appear to be reluctant, after a period in which commercial lending was beginning to trend upward, to borrow to invest in their businesses. That’s largely due to worries about the global economy.
“There’s an uncertainty that has crept back into the [business] psyche in the past month or two,” McKay says. “There has been some dire press out there, and we feel it. The gears aren’t catching. We’re gearing up, then splintering, [then] gearing up, then splintering – and this is the global contagion we’re in. We just can’t seem to get a normal recovery rolling because of the uncertainty.”
Despite the ominous clouds, however, McKay remains optimistic about the economy overall and about the resiliency of the Canadian banking industry to weather possible corrections, in the economy in general and in the housing market in particular.
“There are so many reasons why Canada is nowhere near what the U.S. is [experiencing in real estate],” he says. “There is a lot of confidence out there that there is strong absorption capability in the [Canadian banking] industry. It’s going to take a massive meltdown before something [very negative] happens.”
McKay began his career at RBC as a computer programmer after graduating from the University of Waterloo with a bachelor’s degree in mathematics. He then switched over to the branch-management training program, working his way up in the branch system.
McKay also returned to school to earn a master’s degree in business administration from the Richard Ivey School of Business at the University of Western Ontario.
During McKay’s career with RBC, he has worked on the trading floor, in corporate banking – including a brief stint in Japan in the mid-1990s – in commercial account management and, finally, in progressively senior management roles in retail banking.
“It feels like I’ve had five or six different careers now,” McKay says. “Working for a big financial group allows you the opportunity to continue to grow personally and have a very diversified career to build skills in many different areas. It never gets dull.”
© 2012 Investment Executive. All rights reserved.