National Bank CEO warns of harsh 'new reality' for fixed-rate mortgage borrowers

financialpost.com:

National Bank of Canada is better positioned than many of its larger rivals to navigate a downturn that’s poised to hit banks’ balance sheets and customers, according to chief executive Laurent Ferreira.

Many of the firm’s clients with fixed-rate mortgages — accounting for about two-thirds of its home-loan book — will soon face a harsh “new reality,” Ferreira said Sept. 21.

About 85 per cent will need to renew those loans — which haven’t yet been affected by higher interest rates — in 2024 through 2026, said Ferreira, who became CEO two years ago.

Canada’s sixth-biggest bank is trying to prepare them for the shock, he said, noting that clients with variable-rate loans that increase along with interest rates have already seen average monthly payments increase by $600 a month in Quebec and $1,200 in Ontario.

And they shouldn’t count on rates dropping any time soon, Ferreira said.

During a speech earlier in the day in the bank’s hometown of Montreal, he predicted inflation will remain sticky and that interest rates will stay high over the next year.

While revenue growth won’t come easily amid the economic turbulence, Ferreira said he thinks National Bank — which is similar to a United States super regional bank with its focus on the province of Quebec — will outperform bigger Canadian peers on several fronts.

Its “well-balanced” business is not concentrated in any particular sector, he said, and it has limited exposure to unsecured consumer debt — thanks to a smaller credit-card business. And while National Bank plans to curtail hiring to rein in expenses, Ferreira said it’s not considering painful job cuts like some of its competitors.

National Bank also has a large capital reserve — its CET1 ratio is 13.5 per cent, well