(Toronto) Executives at Canada’s biggest banks finally see mortgage renewal risks easing, but concerns about tariffs and political uncertainty are taking over.
Posted at 3:56 p.m.
Ian Bickis
The Canadian Press
“I think tariffs can do a lot of damage,” RBC CEO Dave McKay said Tuesday at a conference of bank executives hosted by RBC Capital Markets.
“It is disappointing to hear the rhetoric intensifying, when we thought it was easing to some extent,” he added.
The concerns come as new U.S. President Donald Trump has threatened to impose a 25% tariff on Canadian and Mexican imports due to what he says are concerns about border security.
Mr. McKay said the question was not just whether the United States would impose tariffs, but whether they would be broad or targeted, as well as how long they could stay in place.
“It’s raising concerns among everyone that it will cause economic damage, and we’re not sure what goals it’s trying to achieve,” he said. The bank is preparing for various scenarios, McKay said.
Political uncertainty in Canada
CIBC CEO Victor Dodig said he was also concerned about the risks, but hoped the damage the tariffs would do to both countries would become clear.
“I am confident that common sense will prevail in examining the integrated nature of our economy and how we can move things forward for the benefit of American and Canadian consumers and businesses,” he said. he argued.
He said whatever the outcome, the bank will cope as it did during the pandemic, by controlling what it can – and Canada should do the same with measures like a free trade agreement. -internal exchange.
“Let’s start by solving the problems at home,” he argued.
However, it will not be easy to make progress across the country, with Prime Minister Justin Trudeau announcing Monday that he had requested the prorogation of Parliament until March 24 and that he would step down after a leadership race. Liberal Party.
Uncertainty over who will lead the Liberals and what happens with this year’s election will likely affect investment in Canada, said BMO CEO Darryl White.
“What do people do when they are uncertain? They are waiting. This expectation, which is a natural consequence of uncertainty, is starting to be felt a little in Canada,” he indicated.
This contrasts with the United States, where there had been more uncertainty a year ago regarding government, interest rates and regulatory policy.
“You can say what you want about the outcome, but most of that uncertainty has been removed,” Mr. White noted. Put the drama aside, there is clearly a growth agenda that people are buying into. »
The “great renewal” of mortgage loans
The uncertainty on the political front contrasts with the Canadian mortgage market, which has been the main area of concern for banks in recent years.
Mortgage concerns have been easing since the Bank of Canada began lowering its key interest rate last year to what is now 3.25 per cent. Further rate cuts are expected in the coming months.
Borrowers have handled well the “big rollover” of mortgages, the term analysts use to describe borrowers’ adjustment to rates much higher than what they signed up for at the start of the pandemic. Despite the higher rates, delinquency levels remain lower than before the pandemic.
About 60% of RBC customers are expected to renew at lower rates, McKay noted.
“When we look at the overall payments shocks, they have decompressed significantly,” he argued.
Many Canadians are still struggling with higher payments, which have also weighed on the economy, but this only reinforces the view that the Bank of Canada will continue to sharply cut short-term rates, a he noted.
TD Chief Operating Officer Raymond Chun, who is expected to take over as CEO in April, said the bank had already seen an uptick in business late last year.
“We certainly saw a notable fourth-quarter recovery in mortgage sales and volumes at TD and across the industry, even before the full effect of the two 50 basis point declines had taken hold. be truly felt,” he argued.
Mr. Chun noted that about a third of mortgages due for renewal over the next two years will likely be at lower rates.
“From a credit risk management perspective, you’ve probably already seen the high end of the range,” he said.
