Big banks' mortgage growth buckles under weight of rate hikes
The aggressive pace of interest-rate hikes is hitting mortgage books at Canada’s biggest banks, leading to slowing loan growth, longer amortization periods and a rise in impairments.
Higher borrowing costs cut into mortgage growth, with would-be homebuyers sitting on the sidelines. At the country’s five largest lenders, including Royal Bank of Canada and Toronto-Dominion Bank, residential loan growth slowed to four per cent in the fiscal third quarter, compared with annual growth of 9.8 per cent a year earlier.
Meanwhile, the amount of impaired loans in the five firms’ core Canadian banking businesses almost doubled from a year earlier.
Stage 3 loans — an accounting category for loans in default that are less likely to be paid back — ballooned to nearly $1.3 billion in the three months through July from $717 million a year earlier.
Royal Bank and Toronto-Dominion had the largest Stage 3 totals, at $302 million and $285 million, respectively, reflecting the bigger loan books at the two banking giants. Still, the figures account for a small fraction of the lenders’ overall portfolios.
Bank of Nova Scotia said it’s been deliberately slowing mortgage growth as it shifts use of capital.
“We’re just being more disciplined with regards to customer selection at time of origination, and this is a good time to drive that standard higher here because it’s a softer, slower housing market,” Dan Rees, Scotiabank’s head of Canadian banking, said on a conference call this week. “We are also being more efficient with regards to our use of capital and using customer deselection at renewal as part of that conversation.”
We’re just being more disciplined with regards to customer selection at time of origination
The strategy has been
Read more on financialpost.com
