Preparing Your Organization for a Potential Recession: A Canadian Risk Manager’s Guide

The global economy is flashing warning signs, and many Canadian firms now expect a downturn. In April 2025, a Bank of Canada survey found 32% of Canadian companies foresee a recession in the year ahead (up from 15% previously), and 66.5% of consumers feel the same (reuters.com). While Canada may dodge a full-blown crash, risk teams must assume the worst. Strong operational resilience and vigilant risk management will be key. This means building on operational risk programs, incorporating key concepts for operational resilience including third party risk management, change management, business continuity and disaster recovery, technology and cyber risk management and data risk management. Stress-testing credit and liquidity plans, and revising budgets under weaker scenarios should also be consideration. Below we break down the actionable steps for risk professionals at Canadian organizatons to shore up defences against a possible recession.

Reinforce Operational Resilience

A recession is exactly the kind of major stress that must be, and can be, planned for. Under an effective operational resilience program, an organizaton will identify and map all critical operations, identify vulnerabilities (people, processes, third-parties, IT, etc.), and build robust crisis-response plans. For example, finance and IT systems should be stress-tested for high transaction volumes and staff shortages. In the federally regulated financial institutions industry, OSFI (Office of the Superintendent of Financial Institutions) has issued Guideline E-21, “sets expectations for financial institutions to prepare for and recover from severe disruptive events” (osfi-bsif.gc.ca). By proactively “identifying, assessing, managing, and monitoring operational risks,” institutions reduce the chance of control failures (cyber incidents, outages, fraud) that can compound a downturn.

In practice, business leaders should update business continuity plans (backup sites, emergency staffing rotas, documented business processes and workarounds), simulate recession-driven scenarios (e.g. simultaneous spikes in call volumes, reduced workforce, remote-work disruptions, or third-party vendor failures), and ensure clear crisis governance. Results of simulations and scenario analysis form part of a feedback loop with forecasting and budgeting activities.

Ensuring the operational resilience program is established, tested and monitored means you’re ready for unexpeted events that could hit the organization's operations during a recession.

Tighten Credit Risk Policies and Lending Guidelines

When the economy softens, credit risks rise. The Bank of Canada’s 2024 Financial System Survey reports that lenders “tightened lending standards and increased monitoring of credit risks” in response to higher rates and uncertainty (bankofcanada.ca). Risk managers should continue this trend: review underwriting criteria (e.g. loan-to-value limits, income documentation standards, debt-service ratios, product mix) and consider adding extra cushions for new lending. For instance, in commercial lending, tighten covenants or require larger equity contributions for new projects. In consumer lending, reassess credit score thresholds and affordability models – especially for big-ticket loans (auto, mortgages, unsecured). OSFI’s 2024-2025 Risk Outlook warns that elevated rates are “increased mortgage renewal/refinancing risk” and will lead to “higher borrowing costs” that dampen business investment (osfi-bsif.gc.ca). Accordingly, banks can adjust pricing and loan terms:

• Loan renewals: Move proactively. Reach out to borrowers months before fixed-rate terms expire. Offer guidance and consider repricing or extending amortizations to prevent shocks.

• Portfolio limits: Reduce concentration in vulnerable sectors. For example, cap new CRE (commercial real estate) or energy-sector loans where stress is rising (the OSFI report flags continuing CRE stress and development/construction uncertainties) osfi-bsif.gc.ca.

• Stress testing: Run more conservative scenario tests on lending portfolios. Adjust probability-of-default (PD) and loss-given-default (LGD) assumptions to reflect weaker GDP or higher unemployment.

• Credit governance: Ensure independent credit risk units rigorously review exceptions. In a downturn, small oversight gaps can lead to big losses.

By tightening credit policies now, banks can build additional capital buffers against deteriorating loans and avoid a scramble to rein in risk once a recession hits.

Enhance Collections Strategies and Delinquency Readiness

If unemployment rises even modestly, more loans will slip. The data are already flashing warnings: in Q2 2024 Equifax Canada found auto-loan and credit-card delinquencies surging. For example, 90+ day delinquency on auto loans from non-bank lenders hit 1.0% (a record high) and bank auto loans hit 1.16%, up 54% year-over-year (assets.equifax.com). Ontario mortgage delinquencies (though still low overall) were the highest since 2014. (assets.equifax.com). Collections teams should prepare now by adopting a customer-centric approach. Rather than waiting for defaults, banks can use predictive scoring to identify struggling borrowers early (e.g. those who tapped savings or used credit cards heavily). TransUnion advises that lenders refine customer segmentation by both risk level and propensity to pay (transunion.ca). This means prioritizing outreach to the most at-risk segments—young consumers with big post-pandemic debts, or business borrowers in weak sectors—and offering flexible solutions. For instance:

• Early engagement: Contact borrowers before a payment is missed. Offer to restructure payments, provide financial coaching resources, or discuss temporary forbearance. A friendly call or email can prevent small problems from snowballing.

• Flexible payment plans: Especially for mortgages, consider extending amortizations or allowing payment skips in extreme cases (keeping in mind prudent loss provisioning).

• Leverage technology: Use omni-channel (SMS, app notifications, emails) to supplement calls. Self-serve online portals for adjusting payment schedules can reduce call-center load.

• Empathetic collections: Emphasize the borrower’s long-term value. By treating collections as customer assistance, banks may recover more over time and even strengthen loyalty (transunion.ca)

Operationally, this could mean increasing staff complement with contractors, cross-training more staff on hardship protocols or temporarily boosting AI-driven chatbots to handle FAQs. The key is “seeing the customer beyond the past due balance.” Proactive, humane collections not only improve recovery rates but also align with regulators’ expectations of treating customers fairly during stress.

Adjust Budgets and Forecasts for Weaker Growth

Budgeting and forecasting must reflect tougher times ahead. A few quarters ago, many analysts assumed a soft landing with inflation quickly returning to target. By mid-2024, the Bank of Canada projected inflation back to 2% by late 2025 (bankofcanada.ca). By April 2025, concerns have been identified regarding the uncertain impacts of tariffs and the intensification of the trade conflict with the USA. Today those assumptions are shaky. Tariff wars and geopolitical shocks have pushed RBC Wealth Management to warn that “recession risk is now substantial for Canada” (rbcgam.com). With business sentiment falling and spending plans on hold (reuters.com; rbcgam.com), banks should run forecast scenarios with flatter loan growth and higher credit costs. Specific steps include:

• Revenue stress-testing: Model loans flatlining or even shrinking, fee income dropping (e.g. from fewer transactions or loan closings), and hedging less profitable.

• Expense control: Identify discretionary spends (travel, hiring) to cut if needed. Freeze non-essential projects or delay branch expansions.

• Capital planning: Recompute dividend and capital issuance plans under a stress scenario. Ensure ncapital buffers are maintained.

• Contingency funding: Forecast deposit inflows/outflows under flight-to-safety conditions. Make sure liquidity positions meet new Basel-III standards in case markets seize up.

By re-forecasting revenues and costs on a downside path, management can proactively adjust strategies (e.g. scale back growth initiatives) rather than react at the eleventh hour.

Revisit Strategic Assumptions and Realign Business Mix

A slowdown is a good moment to rethink strategy. Twelve months ago, many institutions assumed lower-for-longer rates, continued strong consumer spending, and a boom in business investment. Those assumptions are now questionable. For example, earlier this year analysts thought inflation would ease back to 2–3% by 2025 (bankofcanada.ca), but by early 2025 some forecasts were raising the inflation outlook (U.S. inflation may stay near 3% (rbcgam.com) – any stickiness could delay rate cuts and crimp real income. Likewise, consumer trends like a housing boom or robust credit growth could stall. Risk teams should work with the strategic planning teams to highlight which past assumptions have broken: perhaps GDP growth, unemployment rates, consumer sentiment, or commodity prices. Communicate these updates to senior management so everyone shares a realistic view of “the new normal.”

Strategically, organizations should use this pause to shore up resilience and possibly pivot. Consider:

• Diversify earnings: If trading and loan growth stall, emphasize stable fee lines (wealth management, payments services, insurance). Expand cross-sell of products with lower credit risk.

• Digital investments: A downturn is not the time to cut tech programs that improve efficiency. Investing in AI for credit decisioning or cloud infrastructure can pay off when budgets tighten.

• Cost optimization: Conduct headcount and branch network reviews. Many banks are already trimming branch footprints and negotiating vendor contracts.

• Geographic or sector shifts: Rebalance portfolios away from overheated sectors. For instance, if tourism or oil prices weaken, shift capital to domestic retail or government bonds.

• Regulatory alignment: Keep an eye on new OSFI guidelines (e.g. E-21, IFRS 9 criteria) and ensure strategic plans meet them. Regulators may tighten capital rules if systemic risk rises, so plan ahead.

By stress-testing business lines against recession scenarios, management can reallocate resources to the most resilient areas. In short, lean into the crash – exit non-core businesses, accelerate digital agility, and build a lean structure that can withstand lower revenue.

Key Takeaways

• Operational Resilience (E-21): Leverage OSFI’s updated Guideline E-21 to test and strengthen your business continuity, crisis management, and operational risk frameworks. Treat recession scenarios as high-impact “adverse events” requiring formal plans

• Credit Tightening: Many banks are already tightening credit (BOC reports firms raising standards). Continue this by raising loan criteria, stress-testing loan books, and closely monitoring risky sectors (CRE, energy). Adjust loan pricing and covenants to compensate for higher default risk.

• Budget Stress Tests: Recast forecasts for slower growth. Incorporate softer GDP and consumer spending, higher provisions, and lower revenue. Identify expense cuts and contingency funding plans now rather than scrambling later.

• Proactive Collections: Use data-driven, customer-centric collection strategies. Segment borrowers by risk and need, engage early (pre-delinquency), and consider flexible repayment options. Studies show empathetic outreach retains value and improves outcomes.

• Strategy Shift: Question last year’s assumptions (e.g. quick inflation drop, stable housing, robust consumer borrowing). Reallocate capital to resilient businesses, accelerate digital initiatives, and preserve capital to weather tougher times. Remain agile on mergers or partnerships if they strengthen your balance sheet.
  

By acting now – well before a downturn hits – Canadian organizations can avoid scrambling in the dark. Update your playbooks, refresh assumptions, and keep regulators apprised of your recession-readiness. In doing so, you’ll not only safeguard the institution but help sustain the broader financial system through the next storm.

Sources: Recent OSFI and Bank of Canada publications and market research.