Next in Canadian banking 2025

How can Canada’s banks increase productivity, gain scale and grow their businesses?

Chief executive officers in Canada’s financial services industry are heading into 2025 with cautious optimism. Almost half (48%) of Canadian financial services CEOs who responded to our 28th Global CEO survey are very or extremely confident about their prospects for revenue growth in the next 12 months. They’re looking at the forces creating headwinds, such as an uncertain outlook for the Canadian economy, heightened geopolitical challenges and increasing regulatory expectations, and seeing opportunities as well.

Although the Canadian unemployment rate has risen and gross domestic product growth has been underwhelming, the weaker economic environment has created room for the Bank of Canada to reduce its policy interest rate over the past year. This has eased previous concerns that a large swath of Canadians would have to renew at much higher mortgage rates, which could have triggered a wave of defaults. At the same time, new threats have emerged, most notably due to potential US tariffs and North American trade discussions that are creating significant uncertainty and have included recent references to competitive dynamics within Canada’s banking sector.

In our latest overview of the outlook for Canadian banks, we look at some of the strategies that can help them navigate the complex environment that’s emerging. We explore what’s next for Canadian banks—including regulatory pressures, the latest developments in artificial intelligence and opportunities to increase efficiencies, gain scale and grow their businesses—and outline opportunities to strengthen their organizations.

Video

Please accept all cookies to view this video.

Many banks will also be looking at ways to help Canada maintain economic growth and productivity in the face of potential trade disruption, further highlighting the need to harness new sources of value creation during uncertain times.

1 A growth agenda for Canadian banks

Many Canadian financial services executives have been taking action to pursue growth opportunities despite the focus on cost containment in recent years. In fact, 34% of those who took part in our 28th Global CEO Survey say their organization has begun competing in other sectors during the last five years, while a similar percentage say they’ve targeted a new customer base. Although the ongoing possibility of US tariffs creates headwinds for their Canadian business, the overall health of Canada’s banks is leading some to continue eyeing opportunities to capture new customers and further engage underserved market segments.

The path to growth could involve building digital-first challenger banks, which tend to offer many of the characteristics banking consumers, including the sought-after cohort of younger customers, are prioritizing. Our new Global Consumer Preferences in Banking Survey offers insights into what bank customers in Canada want most, with convenience and ease of use (87%) and low cost (83%) ranking particularly highly among the more than 200 Canadians surveyed. The research also showed high bank switching behaviour among younger respondents, further highlighting the opportunities a move into the challenger space can offer to attract this valuable customer segment.

Banks are also looking to grow their asset and wealth management and business banking activities due partly to a desire to reduce reliance on earnings from net interest margins. The opportunities in asset and wealth management are particularly attractive in Canada given the ongoing transfer of large amounts of wealth from older Canadians to their heirs. At the same time, Canadian banks with US operations may wish to divert more resources to both organic and inorganic growth of those subsidiaries given a stronger outlook for the economy south of the border.

Strategies to compete and grow in 2025

How can Canada’s banks position themselves to make the most of these and other growth opportunities?

It all starts with having clarity on the opportunities available and having a deep understanding of where and how to compete. Accelerating technology modernization will also be key as this will help banks further improve efficiency ratios, enhance their retail offerings, capture more value from corporate banking and better target and address underserved areas like the small- and medium-sized business segment. Continuing to expand their capabilities in cloud technology will be critical given its role in helping banks be more agile and accelerating innovation and change.

For mid-sized institutions, we see significant opportunities to grow as a result of market fragmentation in speciality lending and to address underserved segments across the credit spectrum and geographies. The mid-sized segment is also seeing renewed interest in merger and acquisition activity driven in part by challenges related to the growing cost of regulatory compliance and rising capital requirements, which further increase the need for scale.

%

of Canadian financial services CEOs say they’ve targeted a new customer base in the last five years.

28th Global CEO Survey

2 M&A appetite puts a bigger spotlight on regulatory compliance

It’s not just mid-sized banks that are active on the M&A frontOpens in a new window as we see institutions of all sizes looking to transform and gain scale through inorganic strategies. This was evident in our 28th Global CEO Survey, in which 58% of Canadian financial services respondents said they’re planning to make at least one acquisition in the next three years. The pursuit of inorganic growth puts an even bigger spotlight on regulatory compliance, which is an increasingly important factor in securing approval for proposed M&A transactions as Canadian and US regulators become ever more vigilant in their oversight of financial institutions.

Regulations will apply to increasingly broader segments of banks’ operations, and ahead of any acquisitions, buying institutions will need to ensure thorough due diligence when it comes to areas such as climate change, operational resilience and anti-money laundering compliance. At the same time, while the maintenance of a strong risk culture has always been a key component of a successful banking transaction, it continues to rise in importance for Canada’s banks. This was evident with the Office of the Superintendent of Financial Institutions’ release last year of a regulatory notice outlining its expectations around culture risk management.

Below, we explore some of the important regulatory matters on the agenda of Canada’s banking industry in more detail and what they mean for Canadian banks:

Key among the regulatory developments is OSFI’s B-15 guideline on climate risk managementOpens in a new window, which came into effect for fiscal year-end 2024 for domestic systemically important banks. It takes effect for fiscal year-end 2025 for all other in-scope small- and medium-sized deposit-taking institutions.

The guideline will require banks to report publicly on key climate risk indicators, and they’ll need to devote significant resources to performing their initial risk assessments. As a result, they may need to re-evaluate their data collection processes and engage a variety of subject matter experts to fully assess and disclose their climate-related risks. Despite the extra work and resources involved, banks’ efforts to comply can help them manage the growing slate of similar disclosure requirements in other jurisdictions.

Also on the agenda is OSFI’s E-21 guidelineOpens in a new window, which sets out expectations for operational risk management practices, how organizations support operational resilience and how they plan to maintain critical operations through disruptions. OSFI expects compliance with some aspects of the guideline by September 1, 2025, with full adherence required a year later. By September 1, 2027, banks must have completed scenario testing for all critical operations.

Banks will already have a handle on some aspects of the regulations, but they’ll need to develop an end-to-end and connected approach to a challenge that many companies manage in silos. They’ll also need to embed resilience into the design of their critical operations and the underlying technology, data, third parties, people and premises that support them.

One option is to consider resilience pilot projects to better understand the data and documentation available and determine who needs to be involved. Banks can also approach operational resilience programs as more than just an exercise in regulatory compliance and use them as an opportunity to break down silos between different functions. This will enable the bank to be even more proactive and effective in managing increasingly interconnected and complex risks while also helping the organization to differentiate itself when incidents occur.

Ahead of a review by the Financial Action Task Force (FATF), the federal government has been moving to strengthen Canada’s anti-money laundering and anti-terrorist funding regime. Canadian banks can also expect more cross-border scrutiny after the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) signed a memorandum of understanding for sharing supervisory information between it and key US agencies.

Increased cooperation with US authorities and the FATF review will likely lead to even more focus and rigour for Canada’s anti-money laundering regime. Canadian regulators are moving to more closely mirror stricter US standards, which may continue under the new administration south of the border.

To prepare for a stricter regime, banks can confirm that they have the basics in place, including proper governance, training and monitoring, and those that haven’t done a self-assessment recently can consider undertaking one. Recent enforcement actions in Canada and the United States, as well as an examination of organizational values, culture and leadership, can provide a roadmap for areas to focus on.

%

of Canadian financial services CEOs are planning to make at least one acquisition in the next three years.

28th Global CEO Survey

3 Harnessing agentic AI and other powerful new tools for innovation

In the coming year, Canada’s banks will continue to look for ways to be more competitive by using various forms of artificial intelligence to manage costs and boost revenue. For most banks, generative AI is no longer an abstract concept. They’re writing proofs of concept and running pilots for multiple lines of business and functional areas.

There’s also a significant interest in the latest evolutions related to agentic AI, which can solve multi-step problems without repeated human intervention. It differs from generative AI in that it can take next steps autonomously. For example, generative AI can translate legacy software code to a more modern language, but then a human would need to run test scripts.

Agentic AI is more powerful as it can translate the code and then use bots to run the scripts. Use cases include updating and testing legacy systems, showing its potential to be transformative for Canadian banks. At the same time, harnessing the possibilities further heightens the importance of ensuring trust, enabling proper governance and considering the unique risksOpens in a new window posed by agentic AI systems.

Moving further along the AI and data spectrum

Despite the promise of generative and agentic AI, these emerging technologies remain largely in the exploratory and experimental stage as banks look to scale them into production. Only 8% of Canadian financial services participants in our 28th Global CEO Survey think AI will be systematically integrated into their core business strategies to a large or very large extent in the next three years, which was significantly lower than among global industry respondents, at 25%. This raises important questions about what's holding them back from moving faster.

Banks are quickly embracing the technology but are in the early stages of putting in place the needed governance, oversight, monitoring and compliance practices with a view to internal risk management and potential downstream regulatory mandates. While regulatory frameworks related to governance, monitoring and compliance already exist for technology more broadly, these AI applications are so new that current requirements may need to be refined and updated. Although additional regulations may be on the horizon, the task for the moment isn't so much to prepare for expected future requirements as to align these new applications with the existing rules and ensure they’re compliant.

AI also has the potential to reshape how organizations approach data. Good data is necessary for AI, but it's hard to reach perfection because the applications it’s being used for are constantly changing. The good news is AI itself can be used to clean data, offering a powerful tool to move the bank further along the data spectrum.

%

of Canadian financial services CEOs think AI will be systematically integrated into their core business strategies to a large or very large extent in the next three years.

28th Global CEO Survey

The path forward for Canadian banks

As Canadian banks navigate an uncertain environment in 2025, they face significant challenges, from regulatory pressures to economic volatility and the need to accelerate adoption of key technologies. But these challenges also present opportunities for growth and innovation. By embracing opportunities to expand and gain scale, enhancing regulatory compliance and harnessing the latest evolutions in AI and data capabilities, banks can unlock new avenues for value creation.