Higher credit requirements manageable amid rising economic risks, bank CEOs say
Global News
Canadian bank CEOs say they're able to adapt to the higher credit requirements the banking regulator has set in response to rising economic vulnerabilities.
Canadian bank CEOs say they’re able to adapt to the higher credit requirements the banking regulator has set in response to rising economic vulnerabilities.
Speaking Monday at a Toronto conference organized by Royal Bank of Canada, RBC chief executive Dave McKay the bank will stay well above the 11 per cent capital buffer requirement even with its pending $13.5-billion acquisition of HSBC Canada, while there should be time to adapt to any further potential increases.
“We always run an operational buffer, because you don’t want to dip below your minimum thresholds ever, and face the need to do something that’s off-plan,” said McKay.
In December, the Office of the Superintendent of Financial Institutions (OFSI) raised the capital requirements banks have to keep on hand by half a percentage point. It also increased the range for further increases as a potential safeguard as higher interest rates put more stress on borrowers.
At Monday’s bank CEO conference, OFSI head Peter Routledge said the regulator made the shift as part of being proactive as systemic vulnerabilities have persisted at elevated levels, and in some cases have risen materially in recent quarters.
“We would rather err on the side of acting too early than be criticized for acting too late,” said Routledge.
McKay said that while the housing market is going though somewhat of a correction, he doesn’t expect that an increase in mortgage defaults would be a significant stress for the bank’s capital, as only a low-single-digit percentage of its overall borrowers have both a potential payment crunch and low collateral in their home.
Scotiabank president Scott Thomson, who is taking over the CEO role from Brian Porter in February, said the bank aims to build its credit buffer to 12 per cent by the end of the year, which is the top end of what the regulator can currently require.
