Foreign banks give the Big Six a run for your money
By Jim Middlemiss • Bankrate.com

When it comes to banking in Canada, consumers' options might seem limited, given the size and stature of the country's Big Six banks.

However, they are not the only game in town. There are actually more foreign banks operating here than there are domestic ones. The Office of the Superintendent of Financial Institutions, a federal regulatory agency, supervises about 71 banks in total. Twenty-one are domestic, known as Schedule I banks, because that's the section of the Bank Act that governs them.

There are also 27 others known as Schedule II banks, which are subsidiaries of international banks licensed to accept deposits and work with consumers in Canada. They include banks from all over the world, such as China, India and the Netherlands. The biggest example is HSBC Bank Canada, which is a UK bank with more than 170 offices in Canada.

For a list of all foreign banks operating on Canadian soil, go to the Office of the Superintendent of Financial Institutions web site, click on Deposit Taking Institutions and then, Foreign Banks.

While consumers might be surprised at the number of foreign financial institutions operating here, the reality is there are fewer than there used to be, says Keith Sjogren, a consultant at Taddingstone Consulting Group in Toronto, which follows the financial services industry. "The Canadian banking public is really not overly kind to foreign banks," he says. "The number of foreign bank subsidiaries here has gone down since they were first allowed."

He attributes that to the strong domestic banking industry. "It's a very difficult market to succeed in when you have got five to six very large, domestic banks that have very established branch networks. It's difficult to develop a reasonable share of the market."

The latest casualty was the National Bank of Greece, SA, which recently announced plans to sell its 11 Canadian branches after operating here since 1969. Before that, Intesa Bank Canada, part of Italian banking giant Banca Intesa S.p.A., sold its Canadian operations, which included 11 branches, to HSBC in March 2004.

Success stories
While many foreign banks can't make a go of it in Canada, others are making inroads, says Sjogren. He says ING Canada has been successful in building its brand here since 1997, even though it has few branches. The bank focuses on providing consumers with a higher interest rate, paid on savings accounts, than traditional banks and provides Internet banking rather than a branch network.

A more recent arrival is ICICI Bank Canada, a subsidiary of India's second-largest bank, ICICI Bank Limited, which has US$42 billion in assets. ICICI opened its Canadian shop in December 2003 and, in October of this year, opened its first Vancouver branch, bringing it to a total of five branches in Canada. That's one more than its rival, State Bank of India Canada.

Most foreign bank subsidiaries belong to large international bank networks that dwarf Canadian domestic banks. HSBC Holdings plc, the parent company of HSBC Bank Canada, for example, operates in 77 countries and has more than US$1.46 trillion in assets; only $47.4 billion of those assets are in Canada.

Sjogren says HSBC has the heft to compete with Canada's Big Six. "I think the HSBC Bank has got itself firmly planted and has a pretty good future."

He says the opening of new foreign banks reflects immigration and trade patterns. These days, trade with India is expanding rapidly, and the amount of money going back and forth between the two countries is what's drawing the attention of Indian banks to the Canadian market, says Sjogren.

Is your money safe with a foreign bank?
The types of products and services offered by foreign banks run the gamut. HSBC, for example, has a full menu of banking and investment services, offering savings and chequing accounts, personal loans and mortgages and credit cards, foreign exchange services and wire transfers.

So, how safe is your money with a foreign bank subsidiary? That depends on they type of product in which you place your money. Denise Robichaud, manager, communications and public affairs, at the Canada Deposit Insurance Corporation (CDIC) in Ottawa, says that "in order for a financial institution to take retail deposits, they have to have deposit insurance." It's not optional, she says. "They have to have it."

That means protection for as much as $100,000 according to the CDIC's rules for eligible products, which cover savings and chequing accounts, and term deposits of fewer than five years but not investments such as mutual funds. For more information about what's protected, check out Bankrate.ca's story Are your deposits insured?

Sjogren adds that because most foreign subsidiaries operating here are owned by huge international banks, the "risk, in terms of loss of capital, is very small."

If you're at all concerned about a bank or the services it offers, you can contact the Financial Consumer Agency of Canada (FCAC), which oversees the consumer protection provisions of the federal laws governing financial institutions. Martine Bélanger, a communications officer at the FCAC, says consumers have the right to information about the products and services they are being offered by banks, including services charges and borrowing costs.

For a list of your rights as a bank consumer, visit the FCAC web site.

So, if you are tired of the same old banking arrangements and want to see how these upstart banks operate, there are options and protections that consumers can call on when testing the foreign banking waters.

Jim Middlemiss is a freelance writer and lawyer based in Toronto. He's a frequent contributor to the National Post, Investment Executive and Wall Street & Technology.