(Bloomberg) -- Canada needs to do more to remain competitive -- regardless of the results of the North American Free Trade Agreement talks, according to the head of the country’s largest bank.
“Whatever the outcomes of the Nafta negotiations, Canada must do more to ensure its competitive edge," David McKay, chief executive officer of Royal Bank of Canada, said Friday at the bank’s annual investor meeting in Toronto.
“This is not just about taxes, but addressing how we get our goods and resources to the market, by road, rail, or pipeline, in a sustainable way," McKay said. “The Canada of tomorrow will have to be more flexible, more open, and move faster than before."
Competitiveness has become a hot topic in corporate Canada, following U.S. President Donald Trump’s tax cuts, difficulties getting Canadian products to markets amid pipeline bottlenecks, and concerns about capital outflows.
Yesterday, Bank of Montreal CEO Darryl White told reporters that he’s already seeing early signs of capital leaving Canada for the U.S.
“I wouldn’t say it’s profound at this stage, but I would say that in real time we are seeing the early stages of a decision that’s being made to invest, at the margin, in the United States before Canada with some of our customers," White said, adding that the outflows are due to a "basket of conditions" though taxes play into it.
Royal Bank’s CEO highlighted the importance of the U.S. for its operations, which includes Los Angeles-based City National Bank, wealth management and a sizable capital markets operation based out of New York.
“The U.S. is absolutely fundamental to sustaining our growth," McKay said, noting that the U.S. accounts for 23 percent of the Toronto-based bank’s total revenue versus 18 percent five years ago.
On Nafta, McKay said that while uncertainty over the three-country trade agreement remains a concern for the bank’s customers on both sides of the border, so far those clients and markets have broadly been working through the uncertainty.
“We are in close dialog with governments and our customers and remain hopeful of a good outcome on both sides," McKay said.
The bank is seeing more balanced pricing in the housing market, McKay said. “Policy changes in Ontario and in other provinces have contributed to a welcome shift in market psychology towards more caution, and we remain very comfortable with the characteristics and credit performance of our mortgage portfolio."
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