Canadian banks say borrowers showing strain of higher for longer interest rates
Borrowers whose mortgage amortization periods lengthened as interest rates soared are making lump sum payments to get back onside, but the pace has slowed at Canadian Imperial Bank of Commerce, one of several signs from Canada’s biggest banks that borrowers are feeling the strain.
On a conference call following the release of second-quarter earnings Thursday, CIBC’s chief risk officer Frank Guse told analysts that 90-plus-day delinquencies were rising on Canadian credit cards and unsecured lending. He also agreed with an analyst who noted that while the amount of negatively amortizing mortgages continued to be reduced through the end of April, the pace of those reductions had slowed.
Some who declined to make these voluntary payments recently would have been the ones who could not afford to do so, Guse said, but the bank also noticed some borrowers who appeared to be holding back in anticipation of interest rate cuts.
“We also see some more sophisticated clients in that portfolio that are just saying, ‘I want to wait it out’ and are waiting for interest rates to drop and helping on that part,” he said, adding that some mortgage clients have built up deposit cushions and other liquid assets that could carry them through at least six to seven months of payments.
Royal Bank of Canada’s financial results posted Thursday also shone a light on the impact of higher interest rates on some Canadians, with credit cards contributing heavily to a $24 million increase in provisions for credit losses in RBC’s domestic banking operations, even as the bank did better than analysts were expecting on the back of strong capital markets.
Despite the signs of stress, executives at both banks told analysts they were comfortable with earlier
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