Senior officials address issues ranging from the financial health of consumers to interest rates and credit quality
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Senior executives from Canada’s biggest banks were in New York this week for the RBC Capital Markets Financial Institutions Conference, where they addressed issues ranging from the financial health of consumers to interest rates and credit quality. The Financial Post’s Denise Paglinawan rounds up some of the highlights.
Canada is not alone in lagging the U.S. economy
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Royal Bank of Canada chief executive Dave McKay has noted previously that mortgage payment shock was the main culprit for Canada’s economic underperformance when compared to its neighbour to the south, but this week he noted that other developed economies are in a similar boat. The U.K and Australian economies are also slowing from softer consumer demand caused by higher interest rates, in large part because mortgage debt is being repriced there while in the U.S., where 30-year fixed mortgage terms are the norm, debt is not rolling over. McKay said on March 5 Canadian banks are repricing roughly 15 per cent of their “back book” of existing mortgage clients, a fairly significant shock that is pulling disposable income back from the consumer.
Toronto-Dominion Bank chief financial officer Kelvin Tran also said he’s seeing a change in consumer behaviour in which they adjust their spending based on their debt to service ratio. “You actually see them adjusting their behaviour or spending less, holding more cash cushion,” he said on March 6. Tran said consumers from the last 12 months have been taking action, either by paying a lump sum down or increasing their payments to get ahead of potential debt issues.
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Banks are starting to notice delinquencies, but nothing alarming
Hratch Panossian, chief financial officer at Canadian Imperial Bank of Commerce, said that over the last couple of quarters, delinquencies are starting to come up in mortgage portfolios across the industry. While there’s been an increase in delinquency days, there has yet to have been much in terms of losses and charge-offs, he noted. Panossian said this is pretty consistent with “common sense” expectations. First, delinquency days started to rise and unsecured portfolios suffered monthly payment shocks more quickly as interest rates went up, he said. Lines of credit, secured or unsecured, had monthly payments changed to reflect interest rates, while credit cards did not. “We haven’t seen much change in utilization levels over the last year or credit quality. And so in terms of people’s ability to make those payments, there hasn’t been a big shock yet,” he said.
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The economy is getting better
Bank of Montreal chief revenue officer Piyush Agrawal said the macroeconomic scene has got better than in previous quarters. “We’ve averted a recession,” he said, noting that a soft landing had materialized and that things were getting better. For its businesses, specifically newly acquired Bank of the West, Agrawal said BMO is watching macroeconomic shifts and expects rate cuts in the second half of the year. While that trajectory is not linear, he said markets are betting softer rate cuts and different timing than initially expected. At the end of the day, even with rate cuts, the impact on credit is going to be something to watch: credit migration and/or credit growth will both be big going forward, he said.
• Email: dpaglinawan@postmedia.com
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