Canada’s biggest banks have authorized customers to put off payments on more than $180 billion in mortgages and home equity lines of credit because of the coronavirus pandemic, a considerable sum that suggests a large chunk of household debt is hanging in the balance of an economic recovery.
“At the outset of this pandemic, it was clear to us, based on the inbound calls and based on the economics that we saw out there, that clients were feeling anxiety and hardship,” Canadian Imperial Bank of Commerce chief executive Victor Dodig said on a conference call Thursday morning. “Some was real financial hardship, some was perceived financial hardship, and we wanted to deal with them as expeditiously as possible.”
Dodig’s comments came after Toronto-based CIBC reported it had offered approximately 108,000 customer accounts the opportunity to defer payments on around $35.5 billion in Canadian residential mortgages, or about 16 per cent of its domestic real estate-secured lending.
Similar numbers were announced by the other Big Six members this past week, with the banks reporting they’d permitted payments to be deferred on more than $180 billion of Canadian residential mortgage and real estate-secured loan balances during the three months ended April 30.
That total represents more than 14 per cent of the $1.24 trillion in residential mortgages that chartered banks had on their balance sheets as of March, according to Bank of Canada’s numbers.
The Canadian Bankers Association said 13 member banks have allowed more than 720,000 Canadians to defer or skip a payment as of May 27, representing around 15 per cent of the number of mortgages in bank portfolios.
There are billions more in loans on which international clients could defer payments on. The Big Six are also offering deferrals on Canadian credit cards, personal loans and commercial mortgages. Add it all up and the total amount of debt on which the Big Six have offered payment deferrals is more than $300 billion.
Mortgage deferral periods last up to six months, yet there is no guarantee the economy will bounce back to pre-pandemic levels by the fall.
The head of Canada’s national housing agency even warned a Parliamentary committee earlier this month of a looming mortgage “deferral cliff” this fall, when some unemployed borrowers will have to resume repayment.
“As much as one-fifth of all mortgages could be in arrears if our economy has not recovered sufficiently,” Canada Mortgage and Housing Corp. chief executive Evan Siddall said.
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Loan-deferral programs have helped households in the short term, but “there is a concern that those programs may only have delayed the timing of some households becoming insolvent,” said Charles St-Arnaud, chief economist at Alberta Central, the central banking facility and trade association for the province’s credit unions, in a report published Wednesday.
The Big Six and Desjardins Group’s credit unions account for around 90 per cent of the total assets of deposit-taking institutions in Canada. If borrowers are not in a position to repay come fall, the lenders could have to decide whether to grant their customers further relief.
“We will work with them and take the appropriate steps,” Riaz Ahmed, Toronto-Dominion Bank’s chief financial officer, said in an emailed response to questions from the Post. “We have a good understanding of their business and situation and feel good about the way that we are supporting them through this time, while managing our book of loans as we always do.”
Banks are seeing the rush to defer payments die down. Ahmed said the pace of payment deferral requests from TD’s customers has started to slow from its peak when the relief programs were launched in March and April.
Payment deferrals were granted for approximately $36 billion in balances for Canadian real estate-secured lending as of April 30, or around 12 per cent of TD’s loans in that category, the bank’s latest financial filings showed. The percentage of TD’s loans subject to deferrals was “relatively lower than peers,” National Bank Financial analyst Gabriel Dechaine noted.
Royal Bank of Canada, the country’s biggest bank, said its Canadian banking business had approved deferrals on $47.2 billion in residential mortgages, around 18 per cent of its mortgage balance for the quarter ended April 30, and the largest total in the country.
But some customers who asked to defer payments may have decided to keep paying, or perhaps subsequently received government support that allowed them to do so, which could cut down the number of loans currently going unpaid.
“What we have seen is that a majority of the people who requested deferrals actually did not see income interruption, so many of them continued paying despite having the ability to skip their payments or defer their payments,” RBC chief financial officer Rod Bolger said. “The actual percentage of uptake is much lower than what we reported.”
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