Gary Norris, THE CANADIAN PRESS

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TORONTO - Canadian bank bosses say they're keeping up their lending but there's no doubt the country is undergoing a tightening of credit as other loan sources evaporate.

"To a large degree, notwithstanding what is sometimes reported in the press, it is business as usual," Royal Bank of Canada (TSX:RY) CEO Gordon Nixon said Thursday, commenting Finance Minister Jim Flaherty's perception that credit availability is a key political issue.

Nixon said growth continues in most lending lines, although Canada's largest bank expects "higher, more normalized" loan losses in 2009 after years of unusually favourable business.

Every bank is scrutinizing all loans more closely than a year ago because of the economic circumstances, said Ed Clark, chief executive of TD Bank (TSX:TD).

"It doesn't mean, from the public policy debate, that that says we're tightening credit; it just says we're in the business of making loans that get repaid," Clark declared.

"What we're not going to do, though, is turn down people who we think could repay us. That's the wrong thing socially, but also from a business point of view - I do want to take advantage of this and take market share."

The economy faces "a pretty deep downturn" but Canadian banks differ from the U.S. industry in having avoided "the stupid things," Clark told the RBC Capital Markets conference, webcast from the Four Seasons Hotel.

Despite the economic gloom, Canadian banking is a sweet business, said Louis Vachon, CEO of National Bank of Canada (TSX:NA), the country's sixth-largest.

"One of the consequences of the financial crisis is competition in some segments in Canada in financial services is going down," Vachon said.

"There are some people reducing activities or pulling out. And frankly, secondly, the barriers to entry are going up - it's very difficult for new entrants in the market, and I suspect that's going to be like that for a while."

Bank of Montreal (TSX:BMO) chief executive Bill Downe also said bank earning power is strong.

The slump of share prices has left BMO paying a dividend that yields over eight per cent but Downe said he and the board are "patient" about the payout.

BMO has suffered from its Chicago-centred exposure to U.S. real estate, but "we're going to come out the other side of this at some point," he said, predicting that solid profits will follow "because I expect that we'll have a lot less competition down at the ground level."

On the credit-crunch issue, the industry stands ready to lend, "as a good citizen in the Canadian marketplace but also because there are opportunities," RBC's Nixon said.

"Banks haven't stopped lending in Canada, but there is no question there is a credit tightening in Canada because you've seen a large percentage of the marketplace, whether it's foreign banks or the automotive leasing companies, et cetera, exit the marketplace."

Demand for consumer loans is "stronger than we would have expected, given the economic environment," said Chris Hodgson, head of retail banking at Bank of Nova Scotia (TSX:BNS). He also said Scotiabank continues to grow its loans to small businesses.

"We've been quite focused on our pricing and on moving a number of our clients from variable into fixed" interest rates, said Hodgson, filling in for CEO Rick Waugh who was otherwise engaged.

Scotiabank has seen a "nominal" uptick in credit card delinquencies, and also in borrower fraud, Hodgson said.

At Canadian Imperial Bank of Commerce (TSX:CM), the market leader in credit cards, "an increase in unemployment and a downturn in the economy is going to have an impact," said CEO Gerry McCaughey.

But he said this will be offset as declining recessionary interest rates, which reduce profit spreads on other loan portfolios, benefit the credit card segment as its funding costs decrease while the fixed rates that cardholders pay remain lucrative.

On a wider level, McCaughey said CIBC is getting "as buttoned down as possible" because he fears more massive financial market dislocation.

He noted that prices of oil and other commodities that took four years to rise to record highs were reversed in four months, radically altering global capital flows, while governments and central banks are indulging in unprecedented trillions of dollars of economic stimulus.

"We could see an enormous amount of volatility, hopefully in a more positive way - but I think that would be too simplistic."

There was a consensus that the melted-down U.S. market remains too radioactive for large acquisitions.

Nixon said the troubles of the American financial system will produce "lots of opportunities" for years to come.

Downe said BMO sees prospects for small purchases of branches and deposits liquidated by U.S. banking authorities, but "to buy somebody's loan book and have to work it out - not a very attractive proposition."

After the storm in financial services, "there is no question that regulatory scrutiny will increase, and I think it's appropriate," Nixon said.

More broadly, he foresees an era of "reintermediation," after years in which the banks' traditional business seeped away to investment banks, securitization, hedge funds and private equity.

Clark echoed that expectation, adding that "within the banking system, in both Canada and the United States, there's a reintermediation between weaker banks and stronger banks," as hundreds of billions of dollars of assets need to be refinanced.

"In fact, all banks are having tremendous growth, just because they're filling in for people who have left the market."

At the Quebec-centred National Bank, about to celebrate its 150th anniversary, "we've successfully worked through the asset-backed commercial paper crisis," said Vachon.

The ABCP debacle, in which National Bank alone among the major banks was hit hard, will be reflected in November-January quarterly results.

Looking ahead, "Quebec is not immune from the economic slowdown that we're experiencing right now, but on a relative basis the province should continue to perform relatively well," Vachon said.

"We're well capitalized," he stressed, with a Tier 1 ratio well above nine per cent, and "in the immediate future we do not plan to issue common shares."