Canada’s banking regulator is bracing for tensions in the housing market to last throughout the year, with the sector seen as a growing source of concern.
The Office of the Superintendent of Financial Institutions (OSFI) indicated in its latest annual risk report on Tuesday that the housing market was its main source of concern, as high rates translate into higher probabilities of default. important. “OSFI is preparing for the possibility, without making any predictions, that the housing market will experience sustained weakness throughout 2023,” Superintendent Peter Routledge said in a conference call with the media.
However, credit quality appears quite strong so far and residential real estate remains healthy, he added. “What’s interesting today is to see how benign the conditions have remained. The economy is very strong, the unemployment rate remains very low. Thanks to this, Canadians are able to meet the higher cost of debt without too much difficulty. »
The risk outlook is meant to remind everyone that while the financial picture looks solid, risks still exist, he explained. To better prepare for future risks, he said the regulator is reviewing its B-20 guideline mortgage underwriting rules and taking a closer look at how banks handle loans. variable rate and fixed repayment mortgages.
This mortgage product in question is not an immediate concern, but it could become so over the next two or three years, when conditions begin to be revised and borrowers feel the brunt of the effects of rising interest rates. ‘interest.
The regulator also said liquidity problems are a major risk as banks cut lending and higher rates act as a form of liquidity squeeze. “Generally, we are seeing slower credit growth across all lending sectors, including commercial lending,” Routledge said. Anecdotally, I would say this is a manageable slowdown so far, not extraordinary. »
The recent collapse of Silicon Valley Bank and Credit Suisse has also raised concerns that banks are becoming more cautious about lending, but Routledge said so far he has seen a deceleration in growth. credit, not a decline.
Other areas of concern cited by the regulator include liquidity and funding risk, commercial real estate weakness, private credit contagion risk, digital innovation risk, climate risks, cyber risk and third-party risk for banks that use systems like cloud computing.