CIBC bank

Canadian Banks Increase Loan Loss Provisions as Housing Market Slows

Steve Saretsky -

Amidst a slowing Canadian housing market spurred on by the B-20 mortgage stress test, new credit growth continues to slow. As per the Bank of Canada, household credit growth grew by 3.03% Year-over-Year in December, the slowest past of growth since June 1983. The slowdown has also been reflected in residential mortgage credit growth which slipped to 3.13% the weakest pace since April, 2001.

As a result, and perhaps rather unsurprisingly, Canadian bank earnings largely disappointed in Q1. Starting with the Laurentian Bank of Canada, shares fell the most in almost nine years after the lender said it would cut its workforce 10% after posting earnings that missed analysts’ estimates for a third straight quarter. Net income fell 32% to C$40.3 million for the quarter ended Jan. 31.

The disappointment spread unevenly to CIBC & TD Bank. The Canadian Imperial Bank of Commerce hiked its dividend following first quarter profits sinking 11% to $1.18 billion. While TD reported a 2.4% increase in earnings, yet still falling short of overall expectations. Both banks reported an increase for loan loss provisions, as credit conditions shift to the downside. CIBC loan loss provisions more than doubled from last year, while TD Bank set aside $850M for soured loans, up 23%.

Canadian Bank Loan Loss provisions.
Source: Bloomberg

On a more positive note, RBC Bank, often considered the gold standard in Canadian banking, met expectations, although also succumbed to the pressures to increase loan loss provisions by 54%. Perhaps illuminating the shift in sentiment.

With downwards pressure mounting on home prices, and a diminishing desire from Canadian mortgage insurers to increase their exposure (insured mortgages fell 8% Y/Y in December) new loan originations are likely to remain rather benign.

Join the Monday Newsletter

Every Monday morning you'll receive a short and entertaining round-up of news on the Vancouver & Canadian Real Estate markets.

"*" indicates required fields

The Canadian Economy

Steve Saretsky -

Happy Monday Morning! We got a string of new data this past week confirming inflation in consumer goods, and housing are proving to be more than transitory. Canada’s consumer price index continued to drift higher with prices hitting an 18 year high, up 4.7% from last October. The recent floods in BC...

Steve Saretsky -

The calls for impending interest rate hikes continues. CIBC’s chief economist, Benjamin Tal, was out recently suggesting the Bank of Canada could hike its benchmark interest rate at least six times beginning in early 2022. “I think there is a risk of getting into the market at today’s rates,” noted Tal....

Steve Saretsky -

The BC Government announced it is looking at several cooling measures for the housing market in 2022. They have highlighted two measures. The first is an end to the blind bidding process, and the other is a mandatory “cooling off period” which will allow any buyer a 7 day recession...

Steve Saretsky -

The Bank of Canada continues to slowly drain liquidity after flooding the system with a firehose of cash during the pandemic. Bank of Canada governor Tiff Macklem announced the end of Canada’s QE program (also known as money printing). Furthermore, in Macklems words, “We expect to begin increasing our policy...

Steve Saretsky -

Consumer price inflation ripped higher in September, surging 4.4% year-over-year, the fastest pace of price increases in 18 years. Let’s discuss this further. We have an inflation problem and the Bank of Canada remains of the view that inflation will be transitory. Although they really can’t say otherwise, for if...

Get the Saretsky Report to your email every month

The Saretsky Report. December 2022