CIBC says it can withstand changes to real estate market, mortgage rules

TORONTO — Soaring home prices have been a boon to mortgage businesses, but recent government efforts to cool the housing market could impact lenders if the economy falters, CIBC said Thursday.

While Canada’s economy is pumping out jobs and growing at a steady pace, a potential shock could put borrowers at risk of foreclosure — particularly those who have overextended themselves to buy homes, said the bank’s chief risk officer.

“If house prices do come off, we need our borrowers to continue to have their jobs to service their loans,” Laura Dottori-Attanasio told analysts during the bank’s third-quarter conference call.

“But in the event we find ourselves taking on assets, we do have — and continue to have — a good buffer as it relates to that loan-tovalue.”

CIBC reassured analysts that its loan book, which sits at $197 billion, won’t turn into a problem. The bank took on $16 billion of new mortgages in the quarter, an increase of eight per cent over the same time last year, with more than half in Toronto and Vancouver’s overvalued markets.

The prospect of more Canadians missing debt payments has become a hot topic of discussion in the financial sector as Canada heads into an uncertain economic climate next year. Many economists are calling for slower economic growth next year, saying the nearly four per cent pace logged in the first quarter of this year is not sustainable.

Meanwhile, stricter regulations drafted by the Office of the Superintendent of Financial Institutions last month could also put the brakes on loan portfolio growth by curbing mortgage demand considerably. An imposed “stress test” for all uninsured mortgages would make it harder to qualify.

CIBC chief executive Victor Dodig acknowledged that higher interest rates and regulatory changes would lead to a “moderation” in new mortgages, but told analysts that the bank is not concerned about any imminent impact.

Still, interest rate decisions by the Bank of Canada could add extra pressure, particularly when loans come up for renewal. CIBC agrees with widespread expectations that the central bank will likely raise the benchmark interest rate by 25 basis points before the end of the year.