Bank regulator sees growing concerns in real estate even as credit quality holds
TORONTO –
Canada’s financial institution regulator says it’s making ready for pressure within the housing market to probably final all year long because it flags the sector as a rising concern.
The Office of the Superintendent of Financial Institutions (OFSI) mentioned Tuesday in its newest annual danger outlook that the housing market is its prime supply of fear, as excessive charges imply increased default possibilities.
“OFSI is preparing for the possibility, but not predicting, that the housing market will experience sustained weakness throughout 2023,” mentioned superintendent Peter Routledge on a media convention name.
Credit high quality, nevertheless, thus far seems fairly sturdy and residential actual property stays sound, he mentioned.
“What’s interesting now is how benign conditions have remained. Underlying that is a very strong economy, unemployment is still very low. And because of that, Canadians are servicing the higher cost of debt, quite handily.”
The danger outlook is supposed to remind everybody that whereas funds look sturdy, the dangers are nonetheless on the market, he mentioned.
To higher put together for future dangers, he mentioned the regulator is working via its assessment of B-20 mortgage underwriting guidelines, in addition to taking a more in-depth have a look at how banks are dealing with variable fee fixed-payment mortgages.
The particular mortgage product is not an instantaneous concern, however he mentioned that it might turn out to be one within the subsequent two or three years because the phrases start to reset and be repriced and debtors really feel a larger hit from increased charges.
The regulator additionally famous liquidity considerations as a prime danger as banks pull again on lending and better charges act as a type of liquidity tightening.
“Generally we’re seeing across all lending sectors, including commercial lending, slowdown in credit growth,” mentioned Routledge. “Anecdotally, I would characterize it as so far as a manageable, not extraordinary slowdown.”
The collapse of Silicon Valley Bank and Credit Suisse have additionally raised considerations that banks will turn out to be extra cautious on lending, however Routledge mentioned that thus far, he is seen a deceleration in credit score progress, not a decline.
Other key areas of concern recognized by the regulator embrace industrial actual property weak spot, transmission danger from areas like personal credit score, digitization of finance that accelerates the motion of cash, local weather change, cybersecurity and third-party dangers from banks counting on methods like cloud computing.
This report by The Canadian Press was first revealed April 18, 2023.
