The squeeze on prime lending
The non-stop tightening of risk on Canadian Big Bank balance sheets in a critical time for housing inventory demand.
In this edition, we delve into the latest financial performances, regulatory updates, and strategic partnerships shaping Canada's financial and housing markets. From First National's Q4-2023 achievements to new regulatory measures aimed at enhancing market stability, we explore key developments that are influencing investment decisions and policy directions across the country.
A question we pose to our readers: with the safety nets around our Nation’s mortgages, our default rates (even at the highest points) are where other countries dream about having as their low-end default rates, especially in the more recent environments.
Does this start a new era of attracting foreign capital for funding Canadian real estate?
First National's Financial Performance
First National Financial Corporation's fourth quarter earnings showcase robust revenue growth, highlighting the strength of Canada's mortgage bond program. This performance reflects the company's strategic positioning and the overall health of the mortgage lending sector.
Key points in Q4:
Single-Family Origination Down 20%
Commercial Origination up 27%
No defaults in Commercial Book
Residential and commercial MUAs grew by 10% and 16% respectively in 2023
$11.8 billion in securitization funding achieved in 2023, with potential for more in 2024.
Net interest margin expected to remain flat year-over-year in 2024.
First National's Excalibur product has no losses and maintains a low arrears rate.
Detailed analysis is provided on Investing.com. (Don’t be alarmed that it’s the India subsite for Investing.com as they summarized the transcript and hosted it there)
Limiting High-Leverage Loans in Canadian Banks
Canadian regulators are set to impose limits on high-leverage loans in banks' portfolios, specifically capping loans at 4.5 times a borrower's annual income. This regulation aims to mitigate financial risks and ensure sustainable lending practices. Morningstar reports on this development here.
Bank of Canada's Quantitative Tightening Timeline
The Bank of Canada announces an end to quantitative tightening by 2025, a strategy that involves allowing bonds to roll off its balance sheet. This policy shift is crucial for investors to understand the future landscape of Canada's monetary policy. Kitco News provides further details here.
OSFI's Mortgage Risk Management Practices
The Office of the Superintendent of Financial Institutions (OSFI) has released guidelines reinforcing residential mortgage risk management practices. These guidelines are crucial for ensuring the stability and integrity of Canada's housing finance system amidst changing market dynamics. Learn more on OSFI.
BMO and Carlyle Group Forge Investment Fund Partnership
The Bank of Montreal (BMO) collaborates with the Carlyle Group to launch a new investment fund, enhancing their offerings in infrastructure, real estate, private credit, and private equity. This partnership signifies a strategic move to cater to the diversified investment needs of Canadian investors. Coverage by The Globe and Mail and Investing.com offers in-depth insights.
Government of Canada Retains AAA Stable Rating
Morningstar DBRS has reaffirmed the Government of Canada's AAA stable rating, maintaining confidence in the country's financial stability amidst discussions around the Canada Mortgage Bond program. This rating reflects the strong economic foundation of Canada. Learn more on DBRS Morningstar.