Canadian lenders urged to prepare for escalating mortgage risks

The central bank’s continued interest rate hikes, as with those in the US and other countries, ruffled the feathers of the local mortgage market, which sits at an estimated C$2tn. Known as negative amortisation, this irregularity occurs when homeowners can only cover their monthly interest payments and not make a dent in the mortgage itself.

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Raising concerns about the financial well-being of lenders instigated the capital holding suggestion from the OSFI. The revised capital measures come into effect next year. Peter Routledge, the Superintendent of Financial Institutions, said:

We have updated several of our capital guidelines to promote [the] prudent allocation of capital against risks that lenders and insurers take. Consistent with our approach to principles-based regulation, we first consulted regulated institutions on these changes and we thank those who provided us with their feedback. We believe these incremental changes add additional resilience to Canada’s financial system.

The top six Canadian banks allotted a joint C$3.5bn as a safety net for risky mortgage loans, which took a sizeable chunk out of their quarterly profits. Compared to the first nine months last year, the C$9.45bn set aside during the same period in 2023 is four times more.

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