(Toronto) Canadian bank executives expect to set aside more money this year for possible defaulted loans, but say borrowers are generally doing well despite higher interest rates .
At a conference of bank bosses on Tuesday, Royal Bank of Canada (RBC) President and CEO Dave McKay said he expects loss provisions to hit a record high this year, as some commercial loans find themselves in a precarious situation.
He finds mortgage borrowers are having to adjust to higher mortgage payments, with an average of $400 per month for customers renewing this year. Salary increases and accumulated savings would help soften the impact of rising rates, he said.
“From what we’ve observed across the industry and at RBC, consumers are doing a very good job of using their savings and changing their spending habits as necessary. Also remember that increasing payments by 20% corresponds, on average, to increasing disposable income. »
Mr. McKay expects modest deterioration on a number of fronts in 2024, particularly in U.S. commercial real estate, some multifamily residential real estate markets, capital markets and some areas of non-consumer lending. guaranteed.
Scotiabank CEO Scott Thomson also expects provisions for defaulted loans to be higher, but he thinks business will be more stable after restructuring efforts in 2023.
Mr. Thomson points out that rates have already started to fall in Latin America, in markets where Scotia has a presence. This trend would help reduce risks and reduce loan losses, he said.
For his part, the big boss of the National Bank, Laurent Ferreira, believes that the markets are too optimistic about a possible drop in interest rates. Many factors could complicate the fight against inflation, according to him.
“There is geopolitical risk, which could have an effect on food prices. There are trade disruptions, the energy transition, deglobalization, public spending, all of this is inflationary,” lists Mr. Ferreira.
“Yes, we should see some rate cuts, but I think the market is a little optimistic about the Canadian economy and rates,” he adds. We expect negative GDP growth for the first two quarters of minus 1.1% and 1.3%, respectively. »
With hopes of a possible rate cut, commercial activity could slow in the short term, believe several of the executives present at the conference. This situation could put some pressure on economic growth in the coming months.
BMO President and CEO Darryl White says it makes sense for both personal and business customers to defer borrowing, whether it’s renovating a home or purchasing a business , if they don’t need it today.
“If I told you that it’s highly likely that if you delayed a transaction for six or nine months it would be 100 basis points cheaper, what were you going to do? You’re going to wait,” Mr. White adds.
Mr. Thomson notes that many business executives were waiting for greater visibility on rates and the broader economic situation, leading him to moderate expectations for business activity this year.
“There’s a lot of uncertainty, which obviously prevents customers, CFOs and CEOs from making decisions. »