Barlow’s Research Roundup: Canadian banks adopting AI much faster than digital currencies

Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow

Bank targets for AI adoption

RBC Capital Markets analyst Darko Mihelic believes domestic banks will be slow to adopt both digital asserts and AI

“We believe the Canadian banks we cover will be lagging adopters of stablecoins and tokenization versus international counterparts as Canada has typically been a slower adopter of technological advancements in the banking space (e.g., Open Banking, AML) and Canada’s regulatory landscape is more diverse with the BoC, OSFI and securities regulators all involved. In our view, the group could partially offset disintermediation by capturing revenue opportunities through stablecoin / tokenized deposit issuance, custody fees, payment rails, institutional & corporate revenue streams from tokenization but in the interim, the Canadian banking system will be slow to adopt … According to an OSFI and Financial Consumer Agency of Canada (FCAC) report, approximately 70 per cent of financial institutions expected to use AI by 2026 (was 50 per cent in 2023). We believe the large Canadian banks use AI in areas including personal banking, commercial banking, insurance, and capital markets.

“An OSFI and Global Risk Institute (GRI) report outlined several evolving risks including: strategic risks, security and cybersecurity threats, consumer risks, knowledge and talent gaps, third-party concentration and supply chain risks, and financial stability risks. OSFI has stated it is not looking to regulate AI prematurely but will stay closely engaged and step in when risks are better understood and clearly material. We highlight cybersecurity risks following recent AI model developments (e.g., Mythos Preview). Cybersecurity-enabled AI could increase attempted cyberattacks in our view, but could also enhance the cybersecurity capabilities of our covered large Canadian banks. Several large Canadian banks have disclosed AI-related financial targets. BMO targets over $1-billion of PPPT from AI by 2030, RY targets $700-million to $1-billion in incremental enterprise value from AI by 2027, while TD aims to deliver $1-billion in AI value (medium-term). We believe AI use will likely provide incremental cost savings for the Canadian banks we cover and possibly increase revenues”

Mr. Mihelic has outperform" ratings on Canadian Imperial Bank of Commerce (CM-T) and Toronto-Dominion Bank (TD-T)

Commercial real estate update

BMO economists Sal Guatieri and Robert Kavcic surveyed the domestic commercial real estate market,

“The industrial segment weakened in 2025 due to large tariffs on key manufacturing industries and will face new challenges in 2026 amid rising energy costs and the uncertain fate of the USMCA. The multifamily residential market remains depressed amid a wave of purpose built rental completions and a glut of unsold condos in some major cities, just as the population is shrinking. 2026 is unlikely to bring much relief to landlords or builders, as higher rental vacancies pressure rents lower. Despite a shrinking population, the retail property market held steady in 2025, with leasing demand supported by lower interest rates and decent consumer spending growth, keeping vacancies down and rents up. 2026 will likely see a repeat if the economy holds up. With more companies requiring in-person work, the office segment is awakening, though progress is uneven across regions and asset classes. Despite weak job growth, lofty vacancy rates are starting to ease, though largely among higher-quality buildings. Some further modest progress is likely this year”

“Canada Commercial Real Estate Market Update” – BMO Economics

Record exports of LNG

CIBC analyst Jamie Kubik recognized record exports of LNG from the west coast,

“LNG Canada continues to set record export deliveries following a record month in April. During the first four days of May, the facility delivered two LNG cargoes at an average rate of 1.8 Bcf/d, building on April’s record average daily rate of approximately 1.7 Bcf/d. Public data indicates another five vessels are expected to arrive by next week, which should keep the facility operating at elevated rates. Last week, Western Canadian field receipts increased by 0.4 Bcf/d to 17.8 Bcf/d, while demand declined to 7.4 Bcf/d. Western Canadian storage increased by 10 Bcf, reaching 597 Bcf, which is 145 Bcf above the five-year average. The AECO basis to NYMEX narrowed to -US$1.51/MMBtu (from -US$1.77/MMBtu W/W), while the Station 2 basis narrowed to -US$1.71/MMBtu (from -US$2.05/MMBtu W/W) … Australia’s LNG projects will be required to supply one-fifth of their production to the domestic market. According to Bloomberg, in an effort to curb high prices domestically, the country will mandate LNG exporters to supply 20% of their output to the local market”

Bluesky post of the day

Diversion

“Which are the most common everyday phenomena that we don’t properly understand?” - Marginal Revolution