The aggressive pace of interest-rate hikes is hitting mortgage books at Canada’s biggest banks, leading to slowing loan growth, longer amortization periods and a rise in impairments.
Higher borrowing costs cut into mortgage growth, with would-be homebuyers sitting on the sidelines. At the country’s five largest lenders, including Royal Bank of Canada and Toronto-Dominion Bank, residential loan growth slowed to 4% in the fiscal third quarter, compared with annual growth of 9.8% a year earlier.
Royal Bank and Toronto-Dominion had the largest Stage 3 totals, at C$302 million and C$285 million, respectively, reflecting the bigger loan books at the two banking giants. Still, the figures account for a small fraction of the lenders’ overall portfolios.
The timing of the pullback is ideal since mortgage spreads have been tight in recent quarters, Dechaine said in a note to clients, and investors may welcome lessened exposure to the residential-loan market as risks rise. The last option has been popular with Toronto-Dominion and Royal Bank clients, boosting the share of mortgages with amortizations of more than 25 years.
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