No plans to bring back special treatment for deferred loans: watchdog
Canada might be in the middle of a second wave of COVID-19, but that doesn't mean a federal banking regulator is about to enable a second wave of deferred mortgage payments.
Superintendent of Financial Institutions Jeremy Rudin said Friday that, in the early days of the pandemic, banks and insurers had to be in a position where they could make “almost blanket judgments” on granting loan and premium payment deferrals.
The Office of the Superintendent of Financial Institutions (OSFI) allowed those deferred loans and premiums to be treated like they were still being paid for up to six months, which meant the banks and insurers avoided having to set aside more capital.
Six months in, though, Rudin said his office believed the financial industry was ready to go back to a case-by-case basis for its deferrals. OSFI announced at the end of August that it would phase out the special capital treatment for deferrals, and the regulator is not currently planning on reversing that decision, despite a second wave of COVID-19 cases hitting Canada.
“Obviously, if we get into a situation where blanket decisions again are required then, of course, we'd have to consider making a further change or perhaps reversing our previous decision,” Rudin said Friday during a conference call with reporters. “But that's not the situation in which we find ourselves.”
Yet Rudin's comments come as Canada's COVID-19 cases have been shooting up again, prompting some governments to reimpose restrictions on certain businesses, and as a number of borrowers are still deferring loan payments. Meanwhile, loan and premium payment deferrals granted after Sept. 30 are no longer subject to OSFI'S special capital treatment.
Still, OSFI said in August that the decision to wind down the special treatment reflected that the measures were meant to be temporary, and that the financial institutions were still free to grant deferrals on a case-by-case basis if they so chose. According to the Canadian Bankers Association, more than 778,000 people had been allowed to defer or skip their mortgage payments as of the end of August, with approximately 32 per cent of those people having resumed repayment.
“There's nothing that prevents banks from continuing to offer deferrals,” Rudin said. “We're just phasing out the extraordinary capital treatment because it's no longer necessary.”
Rudin's comments on Friday also came after the regulator and the Bank of Canada had just finished hosting a virtual get-together for financial watchdogs, the International Conference for Banking Supervisors.