Housing slowdown no dampener for RBC

Bloomberg

Royal Bank of Canada, the nation’s largest mortgage lender, isn’t hurting from a slowing housing market — yet. The Toronto-based bank reported 6.4 percent growth in Canadian residential mortgages in the fiscal first quarter, with average balances climbing to C$238.5 billion ($187.6 billion). That’s down from the 6.6 percent growth rate in the fourth quarter, though it’s still the second-best pace in seven quarters.
Royal Bank’s home loans represent 15.7 percent of Canada’s C$1.52 trillion mortgage market. Mortgage lending makes up a significant part of the firm’s Canadian banking division, whose earnings rose 11 percent to C$1.48 billion from a year earlier when excluding gains from selling a payments business. Those contributions, along with gains in wealth management and capital markets, helped the bank post total profit that beat analysts’ expectations.
“The beat was driven by better than expected results across most business lines,” Credit Suisse Group AG analyst Nick Stogdill said in a note to clients. Royal Bank shares were little changed at C$102.15 at 9:54 a.m. in Toronto. The stock has slipped 0.5 percent this year.
Canadian banks have been anticipating a slowdown in mortgage lending amid elevated housing prices, overextended borrowers, and tougher mortgage eligibility rules that kicked in this year. Still, the nation’s housing market remains robust. Canadian home sales last year were second only to a record 2016, though sales in Toronto’s market has cooled.
“We will continue to help Canadian homeowners while supporting balanced growth in the market,” Chief Executive Officer David McKay said on a conference call after earnings were released. “We will not compromise our risk profile just to add add mortgage volume.”
The country’s banking regulator changed the rules for borrowers in the uninsured mortgage market, making it more difficult for those with less than a 20 percent down payment to qualify for loans as of Jan. 1. The measures, known as B-20 guidelines, requires borrowers to qualify at the greater of the Bank of Canada’s five-year benchmark rate or 2 percentage points higher than the offered mortgage rate.
“That did cause a little bit of an uptick in November and December just because of market psychology,” Chief Financial Officer Rod Bolger said in a phone interview, noting some borrowers may have been worried about qualifying under the new rules. “Canadians really want to be homeowners.” The change will have no impact for many borrowers, though it may cause some to pay a little less for a home or increase their down payment, Bolger said. Still, he said Royal Bank is forecasting mortgage growth to slow to mid-single digits this year.
Canadian Imperial Bank of Commerce, the country’s fifth-largest lender, saw a 9.6 percent increase in mortgages and home-equity credit lines in the quarter, its slowest pace since 2016, when it reported results. CIBC has expanded mortgage balances at a faster pace than its domestic peers in the past two years after beefing up its mobile mortgage adviser sales force. Bank of Nova Scotia and Bank of Montreal report results on Feb. 27, followed by Toronto-
Dominion Bank on March 1.