The post-rate-hike hangover
After a decade of ultra-low interest rates, Canada’s financial sector is adjusting to a structurally tighter environment. The Bank of Canada’s overnight rate, steady at 4.5 percent since early 2025, has compressed lending margins and cooled deal activity. Total household credit growth has fallen to its lowest pace since 2001, while business lending remains flat.
| Indicator | 2022 | 2024 | 2025 (Q2) | Source |
|---|---|---|---|---|
| Bank of Canada policy rate | 0.25 % | 5.0 % | 4.5 % | BoC MPR Jul 2025 |
| Household credit growth (y/y) | +8.2 % | +2.1 % | +1.7 % | Statistics Canada Table 10-10-0122 |
| Business loan growth (y/y) | +6.5 % | +1.9 % | +1.5 % | OSFI Monthly Banking Data |
What’s shifting
- Deposits are sticky but expensive. Deposit betas—the share of rate hikes passed to savers—have doubled since 2022.
- Non-bank competition from fintechs and credit unions is eroding retail margins.
- Capital-markets slowdown: equity issuance down 18 percent y/y; M&A volumes –22 percent.
What leaders can do
- Reprice risk realistically. Build 200-basis-point stress tests into all 2026 lending assumptions.
- Diversify fee income. Wealth, insurance, and ESG-linked products offset narrow lending spreads.
- Adopt AI credit analytics. Early adopters cut loan-loss provisions 10–15 %.
- Invest in trust technology. Cybersecurity and compliance are now brand differentiators.
Arcus Insight: The next growth phase in finance will come from risk intelligence, not leverage. Data-driven credit and compliance systems are the new sources of alpha.