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Commodity prices contributing to exports

• Agricultural commodities, base metals and crude oil account for 46% of exports

Strength of trade sector linked to global growth and demand for Canadian commodities

Rise in commodity prices has increased the price of exports relative to imports, boosting national income and the economy

Canadian Exports by Products 2007

(1)

Commodity goods

46%

27%

Consumer goods

Investment goods

23%

4%

Other goods

Terms of Trade

(1)

Commodity Prices

(1)

(Export prices/Import prices)

January 2002 = 100

1.35 1.30 1.25 1.20 1.15 1.10 1.05 1.00

220 200 180 160 140 120 100

RBC commodity price index excl. energy (LHS) Energy index (RHS)

680

580

480

380

280

180

0.95 2002

2003

2004

2005

2006

2007

2008

80 2002

2003

2004

2005

2006

2007

2008

80

RBC | INVESTOR PRESENTATION

(1) Source: Statistics Canada, RBC Economics Research, Bank of Canada

Canadian mortgage fundamentals are solid

Products

Canada

  • 1 to 5-year terms typical, with up to 40-year

amortization. Prepayment penalties.

  • Limited use of “teasers”

  • U.

    S.

    • 30-year terms with matching amortization

    • “Teasers” (low initial rate, then increases)

Lenders

• Major banks are over 60% of market • Mortgages stay on bank balance sheets

• Brokers are 70% of market • Mortgages usually packaged and sold

Underwriting

• Major banks credit score using in-house models and third-party metrics, and require extensive documentation

• Wide range of underwriting and documentation requirements

Credit Quality

  • No sub-prime origination by major banks

  • Low delinquency rates

  • Sub-prime origination over 20%

  • Higher delinquency rates

Regulation & Mortgage Insurance

Lenders Recourse

  • Must be fully insured if LTV over 80%

  • Insured by government housing agency or government-approved private insurers

  • Insured principal is 90% government-backed if a private insurer defaults

  • Easy to foreclose on non-performing mortgages,

with no stay periods

  • Insured only if conforming and LTV under 80%

  • No regulatory LTV limit – can be over 100%

  • Not government-backed if private insurer defaults

  • Stay period of up to 90 days to foreclose on non- performing mortgages

Consumer Behaviour

  • Interest not tax deductible

  • More apt to pay off mortgage

  • Less leveraged

RBC | INVESTOR PRESENTATION

  • Interest tax deductible up to 125% LTV

  • Less tendency to pay down mortgage

  • More leveraged

    • (1)

      Source: DBRS “Comments on the Mortgage Markets in

Canada and the United States” and RBC data

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