The Canadian banking regulator questions the ability of households to repay their debt

The level of indebtedness of citizens remains worrying in the eyes of the Canadian banking regulator, which says it questions the ability of households to repay their debts.

“The household debt rate remains near its historic high,” Superintendent of Financial Institutions Peter Routledge said Tuesday.

“More than half of mortgages will be renewed or refinanced [over the next few years] at a significantly higher interest rate. As a result, borrowers may not be able to repay their other debts and loans,” he noted during a speech delivered Tuesday in Ottawa.

Peter Routledge made the comments after the Office of the Superintendent of Financial Institutions announced that it would maintain the financial cushion that the country’s big banks must maintain to weather storms and absorb possible shocks.

Canada’s banking regulator is keeping the cash reserve that the country’s big banks must set aside to absorb losses during times of financial uncertainty at 3.5%.

This rate applies to the six major Canadian banks, that is to say those deemed to be systemically important. It is examined twice a year, in June and December, but can be changed at any time if necessary.

Capital requirements for big banks have increased twice in the past two years.

The Office of the Superintendent of Financial Institutions raised the rate by 50 basis points last year and by the same amount the year before.

The regulator also notes that the number of companies in insolvency increased at the start of the year, but has since slowed down, while the number of insolvent individuals has also increased while remaining near its pre-pandemic level. .

“Geopolitical risks have intensified amid growing tensions in the Middle East, which could impact commodity markets and global growth and potentially impact the Canadian financial system. »

The Bureau also emphasizes that large banks continue to publish “excellent results” and remain well capitalized despite the increase in provisions for loan losses and the return to impaired loan ratios equivalent to those before the pandemic.

“Major banks must remain vigilant and continue to exercise prudence in the management of their capital,” Peter Routledge said in his speech on Tuesday.

The regulator expects these institutions (Royal, TD, CIBC, Scotia, BMO and National Bank) to maintain a total Tier 1 capital ratio of at least 11.5% of total risk-weighted assets. risk and highlights that they currently have CET1 ratios above 12%.