Home Capital issues don’t pose systemic risk, RBC, CIBC chiefs say

The CEOs of two of Canada’s biggest banks say liquidity troubles at mortgage lender Home Capital are not indicative of a broader problem, but they are monitoring their mortgage portfolios in light of concerns about high house prices.

Home Capital doesn’t pose a systemic risk because it comprises only 1 per cent of the mortgage market, Royal Bank of Canada’s CEO David McKay told analysts Thursday.

If Home Capital continues to experience funding problems, those loans will simply be refinanced by other lenders, McKay said.

“I think it is an anomaly in the sense that there really wasn’t a credit reason to drive the liquidity challenges that Home Capital faced, but more a lack of confidence based on some disclosure,” McKay said during a conference call Thursday, after the bank reported $2.81 billion of net income during the second quarter.

The health of Canada’s mortgage market has been a subject of discussion in recent weeks after savers started pulling their deposits out of Home Capital, leaving the lender in a cash crunch.

CIBC chief executive Victor Dodig said Home Capital’s liquidity problems are not indicative of the Canadian housing market or the broader Canadian economy.

CIBC reported $1.05 billion of net income during the three-month period ended April 30 — up 11 per cent from a year ago.

Executives at both RBC and CIBC said they are keeping a close eye on their portfolios of mortgage loans in light of high house prices in the Toronto and Vancouver regions, as well as record-high household debt levels.

TD Bank also reported its secondquarter results on Thursday. The Toronto-based bank said it had $2.50 billion of net income during the second quarter, up 22 per cent from the same period last year.