Canada’s banks brace for possible wave of loan defaults. Why that matters – Global News
Earnings week for Canada’s biggest banks saw the country’s major lenders move in lockstep ahead of a projected economic downturn, with each putting more money away for a possible rise in credit losses.
Experts say the more expensive cost of borrowing in Canada and the possibility of job losses could catch up to households and push a growing number into default, though some believe the worst of the debt pain is likely at least a year away.
Canada’s big six banks — TD Bank, RBC, BMO, Scotiabank, CIBC and National Bank — all reported earnings for their first fiscal quarters this week, with similar-sounding results. All reported a dip in profits as they put more money aside to handle credit losses.
Digging into the banks’ financial filings finds a worrying economic picture at the heart of these moves.
BMO’s filings show that the jump in credit loss provisions for last quarter “reflected a deteriorating economic outlook,” though it noted continuing improvements in the business environment after the peak of the pandemic offset some of these concerns.
The Montreal-based lender also pointed to a rapid rise in interest rates — the Bank of Canada hiked rates by a cumulative 425 basis points over the past year, with its next decision coming on Wednesday — as putting strain on its customers.
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“The high-rate environment could have a direct impact on our customers through higher borrowing (e.g., mortgage rates) and debt servicing costs,” BMO wrote in filings Tuesday.
But just because the banks are preparing for higher credit losses doesn’t mean they’ll come to pass, says Angelo Melino, economics professor at the University of Toronto.
When the banks raised their provisions in 2020 because they were expecting major losses during the pandemic, a healthy dose of government aid offset the rate of defaults for businesses and consumers, Melino tells Global News.
But some of those fears from three years ago are being realized today.
In January, total insolvency filings across businesses and consumers were up 13.5 per cent from the previous month and 33.7 per cent higher than a year earlier, according to the Office of the Superintendent of Bankruptcy. Business insolvencies were up 55.4 per cent year over year, the data shows.
Melino says banks are noticing the uptick in bankruptcies as pandemic-era stimulus dries up and businesses are forced to reckon with the new operating environment.
“A lot of companies that have been hanging in there no longer can,” Melino says. “So, in addition to everything else going on in the economy, there’s an overhang of stuff that’s been going on from the pandemic.”
Melino says the banks’ hikes to their credit loss provisions essentially confirms the dour economic outlooks that have led to recession calls from forecasters on and off Bay Street.
Paying down loans will get harder for Canadians this year
While credit loss provisions are on the rise amid higher interest rates and economic uncertainty, Veritas Investment Research analyst Nigel D’Souza says these figures are still below pre-pandemic levels and are currently in the process of “normalizing.”
Nonetheless, D’Souza tells Global News he sees indications that the credit situation is set to significantly worsen for many Canadians in the months ahead.
Higher interest rates are set to drive debt-servicing costs higher for many Canadians with outstanding loans, he says, adding that he expects these figures could “potentially reach a record high” later this year.
Included in the calculation for these costs is disposable income, which means a rise in unemployment — and thereby a drop in income — can also drive this figure higher.
Canada’s labour market has yet to show significant signs of weakness, adding 150,000 jobs in January as the unemployment rate held steady at a near-record low of 5.0 per cent.
But Bank of Canada governor Tiff Macklem has cautioned that the low unemployment rate is not sustainable to lower inflation back to the central bank’s two per cent target. The Parliamentary Budget Office projected in its economic outlook this week that the unemployment rate would rise to 5.8 per cent before the end of 2023.
Melino says that if job losses start to pick up, that will translate to more losses for banks to absorb on consumer debt.
“What happens to the labour market this year is going to be very important for those consumer loans,” he says.
Canada’s job surge: How hot economy could affect employers, interest rates
When debt-servicing costs rise, credit losses historically follow within two years, D’Souza explains. That implies that a surge in debt-servicing costs this year will see a wave of credit losses follow in late 2023 and into 2024, he says.
“That’s what I think will be an important level to pay attention to in terms of determining the risk of credit losses increasing over the next one to two years,” D’Souza says.
What will this mean for mortgages?
One significant source of debt on Canadian banks’ books is in their mortgage portfolios.
While there has been some stress in this segment already, D’Souza notes that the main pain of higher mortgage rates mainly hits the roughly 12 per cent of mortgages that are set to renew in a given year.
Even when Canadians end up delinquent on their mortgages, those losses don’t tend to make a huge dent in banks’ credit losses, D’Souza adds. Since these loans are backed by the properties themselves, they’re typically well collateralized in the event of a default, he says.
“When you look at the losses in past cycles, the bulk of credit losses is not driven by the (mortgage) portfolio. It’s driven by everything else: auto loans, unsecured lines of credit, credit cards, commercial lending,” he says.
Melino says that the bulk of the banks’ mortgages are also guaranteed by the Canada Mortgage and Housing Corp. (CMHC), meaning if there are losses here, it’ll affect taxpayers more than the banks themselves.
Options for homeowners struggling with mortgage payments
While banks may be preparing their balances to cover a possible rise in credit losses, D’Souza cautions that these impacts don’t hit suddenly — they take time to build.
While he says there are “signs of stress emerging,” such as an uptick in credit card delinquency rates and strain on variable-rate mortgage holders, D’Souza says the hit to banks’ balances — and the wider economy — could be a ways off still.
“It’s not to say that there aren’t any signs of stress going on. I would emphasize that credit risk does take time to build,” he says. “That doesn’t happen overnight.”
Gestational diabetes is on the rise and a Canadian study may have found out why – Global News
Gestational diabetes is on the rise worldwide, and a new Canadian study said the reason for it may not be linked to previous speculation such as obesity, maternal age or lack of exercise.
The increase could be that screening methods for gestational diabetes — a type of diabetes that occurs during the second or third trimester of pregnancy — have improved.
The study out of British Columbia and published Monday in the Canadian Medical Association Journal (CMAJ) said in Canada, the rate of gestational diabetes rose to seven per cent in 2014 from four per cent in 2004 across all racial and ethnic groups.
“We were interested in understanding why rates of gestational diabetes were increasing in British Columbia. What we found was that rates of gestational diabetes … there was a change in the way that we screen for diabetes, which has really been taken up in British Columbia,” explained Elizabeth Nethery, lead author of the study and PhD in the School of Population and Public Health at the University of British Columbia.
“We’ve been using a much more sensitive method to screen, and we found that that change in screening practice has really led to the almost doubling of gestational diabetes cases in British Columbia.”
Alberta researchers: New technology a ‘milestone’ in detecting gestational diabetes
The jump in diabetes in pregnancy has previously been linked to maternal age (the risk of diabetes when pregnant goes up with age), less exercise and poor diet, but the authors argued this is likely not the case.
The researchers looked at data from more than 550,000 pregnancies in B.C. from 2005 to 2019 as well as screening methods. During the study period, diagnoses of gestational diabetes doubled, to 14.7 per cent from 7.2 per cent in the province, and so did the amount and type of screenings.
Change in gestational diabetes screening
In order for someone to be diagnosed with gestational diabetes, a glucose screening test needs to be completed.
“Fifteen to 20 years ago, screening was really considered more optional and that has changed. And now we recommend that everybody gets screened in pregnancy,” Nethery said.
Although it’s not mandatory, Diabetes Canada recommends that doctors screen all women between the 24th and 28th weeks of pregnancy.
There are two types of screenings that are used.
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The first type is a one-step screening method that consists of a single two-hour glucose tolerance test. The second type is a two-step screening method, which consists of a one-hour glucose challenge test, followed by a two-hour oral glucose tolerance test for patients who screen positive.
The advantage of the one-step screening is that only one laboratory visit is needed, but this single visit takes several hours and requires fasting and three blood samples, the study said.
“The difference with this kind of one-step approach is that it actually catches quite a lot more people than the previous methods that we were using,” Nethery explained, meaning the use of this method could lead to more diagnoses of gestational diabetes.
Whether it’s a one- or two-step approach, there isn’t a universal method for gestational diabetes screening in Canada. In fact, it varies not only from province to province, but also city to city.
Dr. Jennifer Yamamoto, assistant professor of internal medicine at the University of Manitoba, said because of the lack of uniformity, the glucose test is “quite controversial.”
“We see a lot of variety, whether people do the one- or two-step approach,” she said. “For example, at my centre here in Winnipeg, most people will do the two-step approach. But we still have a number of clinicians who are ordering the one-step approach. So it’s very practitioner-dependent and very regional.”
Currently, Diabetes Canada recommends the two-step gestational screening method.
Lack of screening data
Another problem of gestational diabetes screening is the method is not typically recorded in data registries or hospital discharge summaries, the authors said, and this could explain why the increase in cases of the condition remains unknown.
Although there is a lack of data, the B.C. researchers were able to examine the one- and two-step screening information using medical insurance billing. They then examined a group of pregnancies in B.C. using glucose tolerance screenings (either the one- or two-step process) between 2004 and 2019.
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Between 2005 and 2018, screening for gestational diabetes in the province went up to 95.5 per cent from 87.2 per cent. And the use of the one-step screening methods went from zero in 2005 to 39.5 per cent in 2019, the study found.
The authors found the increase was largely due to changes in gestational diabetes screening practices, from a two-step screening process to a more sensitive one-step screening process.
“We found that change in screening in particular really bumped up the proportion of people that were being diagnosed (with gestational diabetes),” Nethery said.
Does screening improve outcomes?
Gestational diabetes can lead to a number of pregnancy complications if not properly managed. High blood sugar during pregnancy can lead to preeclampsia, abnormal sugar levels in the baby and possible birth injury due to the baby’s large size, according to Diabetes Canada.
Treatment for the condition can be as simple as lifestyle changes, like diet and physical activity; however, some women need to inject insulin in order to manage it.
After delivery, the condition usually goes away, but in severe cases, some women and babies can develop Type 2 diabetes later on in life.
Because gestational diabetes can require a lot of medical involvement during pregnancy (such as more tests and ultrasounds), the more people diagnosed, the more strain on the health-care system, Yamamoto said.
“While newer randomized controlled trials have demonstrated that the one-step approach diagnosis a lot more diabetes, it doesn’t actually improve outcomes at a population level,” she argued.
The one-step screening method picks up gestational diabetes at lower sugar levels, meaning health-care providers can pick up more “mild forms” of the condition.
“And those are the types of diabetes that maybe don’t benefit from the additional treatment, as we would see in people with more severe, higher blood sugars,” Yamamoto said.
If a person is diagnosed with gestational diabetes, there are more tests, medical visits and ultrasounds and the person is more likely to be induced, she said.
“These not only have a cost to the system, but they also have a lot of individual implications for people,” she said. “And we are potentially kind of over-diagnosing people who especially are on the lower range of blood sugar.”
Women with diabetes, obesity during pregnancy at higher risk to having child with autism: study
— With files from Global News’ Katherine Ward
Woman told she shouldn't serve on Ottawa health board because of her weight – CBC.ca
A member of the Ottawa Board of Health is speaking out against body shaming after she received a letter from a resident telling her she shouldn’t be on the board because of her weight.
Elyse Banham said the letter, dated Jan. 12, sat unopened for weeks on her desk at the Ottawa Birth and Wellness Centre, where she’s executive director. Banham figured it was simply more hate mail protesting the centre’s vaccine clinics.
She finally opened the envelope March 18, and realized it was a response to an Ottawa Citizen article in which Banham called for more diversity on city boards. The letter is signed, but CBC has been unable to verify its authenticity or find the writer, and is therefore redacting the name.
Banham has been a member of the Ottawa Board of Health for four years and has applied for another four, the article noted. But the letter writer took exception to that, apparently based on the photo of Banham accompanying the article.
“As a member of the Ottawa Board of Health, citizens expect you to be a role model for our city’s residents and believve (sic) you cannot fulfil that role due to your unhealthy status. It is unacceptable to be overweight by the 20 pounds it appears you are carrying,” the letter to Banham reads.
“I would be happy to see you on the new committee on the condition that you become a better role model.”
Banham told CBC on Sunday that she was hurt by the letter, but not entirely surprised.
“It’s not that I haven’t experienced this before — I think that people can be very unkind to each other. But this was the first time that somebody took the time to send me a letter and point out that I wasn’t capable of performing work because of my body appearance,” she said.
She decided to post the letter on Twitter, and said she’s received many supportive messages in response.
Fixed it for you. <a href=”https://t.co/3pt173sxkn”>pic.twitter.com/3pt173sxkn</a>
What a horrible letter & strange to direct it at you. They clearly have distorted ideas about health.<br><br>And it’s hurtful & shaming to folks who are overweight – size should never preclude someone from leadership.<br><br>Thanks for your service & I’m sorry you received this kind of hate.
Ignore this person. They clearly have so little respect for themselves that they felt it appropriate to lash out at someone trying to make a positive impact. <br><br>Keep up the good work and know there are many more out there who support you.
Catherine Kitts, the city councillor for Orléans South–Navan and chair of the health board, called the letter “horrendous.” Kitts said she’s sad not only for Banham, but also for the letter writer who took the time to send such a hateful message.
“I was proud of member Banham for calling it out, because that also takes guts, and I was pleased and not surprised to see this outpouring of support for her,” Kitts said. “Member Banham is such an incredible addition to the board of health. She’s such an excellent contributor and a very valued member, and that should be the message. Her contributions to the board speak volumes.”
Vitriolic attacks are an ugly side of public leadership, Kitts said, and situations like this are a reminder “that this is what we’re facing every day.”
Jill Andrew, co-founder of the advocacy group Body Confidence Canada, said that when women in public positions are targeted by body-based discrimination and harassment, “it certainly doesn’t create the type of welcoming, inclusive climate that we need to have more strong women coming forward. So it’s disappointing.
“All too often women are judged not by our intellect, not by the quality of our work or by the history of our work, but by our waistlines. And it is absolutely absurd … it can take many of us away form the duties we have on our plate.”
Banham said she’s proud of the support she’s received after going public with the letter.
“Nobody wants to be told they’re 20 pounds overweight. I can certainly tell you that I did not enjoy that part of my day. But talking to somebody like Greg Fergus — a member of Parliament who posted about working with me and the fact that I am somebody who leads with integrity and tries to use my thoughts and my opinions to support others — I value that and I’m very grateful,” she said.
She said she hopes her experience will show people wanting to serve on boards and in other leadership roles that while there will always be people out there wanting to take shots at them, there are many others who will come to their defence.
“The intent of this message was to hurt me and belittle me. And it would have been easy for me to take that and feel isolated in it. But the reason I shared it is because we can do better together, and the majority of people think that, and that’s why there’s been this outpouring of support,” Banham said.
“And so I’m grateful for all those people who came to my defence, and what I think that really says is that we are looking for more diverse opinions.”
Listen to Elyse Banham’s entire interview with CBC Radio’s Ottawa Morning on Monday
Ottawa Morning7:44Ottawa Board of Health member speaks out about body shaming
Budget 2023: Freeland outlines priorities – CTV News
The coming 2023 federal budget will “exercise fiscal restraint” while also making “significant” investments in Canada’s health-care system and building a clean economy, Deputy Prime Minister and Finance Minister Chrystia Freeland said Monday.
In a speech detailing the Liberal government’s priorities ahead of next week’s budget release, Freeland said the budget will include “targeted inflation relief” to help Canadians who are most acutely feeling the pinch as a result of rising prices.
This echoed Prime Minister Justin Trudeau’s commitment last week that the massive fiscal document being tabled will include affordability measures meant to “directly help Canadians.”
Though, with the federal government remaining mindful of the need to not pour fuel on the fire of inflation, Freeland is vowing to “exercise fiscal restraint.”
“This support will be narrowly focused and fiscally responsible. The truth is, we can’t fully compensate every single Canadian for all of the effects of inflation or for elevated interest rates,” Freeland said. “To do so would only make inflation worse and force rates higher, for longer.”
Addressing the state of the Canadian economy, the finance minister touted Canada’s near-record low unemployment rate post-COVID-19 recession, but admitted that inflation is “still too high.”
She said that higher interest rates are having their intended impact of slowing the economy down, however that means the federal government’s revenues are lower, and no longer in a place where the massive pandemic-era support programs can be sustained.
“Our ability to spend is not infinite,” Freeland said, pointing to existing supports for lower-income Canadians as an appropriate place to focus specific cost-of-living efforts.
Speaking about what she said she’s heard from Canadians during her pre-budget consultations, the finance minster spoke about how, whether she was talking to someone doing well or struggling to get by they shared a common concern for their neighbours.
“What Canadians want right now is for inflation to come down and for interest rates to fall. And that is one of our primary goals in this year’s budget: not to pour fuel on the fire of inflation.”
PRIORITY SPENDING ON HEALTH AND CLEAN ECONOMY
She signalled that with economic prudence in mind, the 2023 federal budget will still be prioritizing “two significant and necessary investments”: health-care funding and building Canada’s clean economy.
Freeland confirmed that as expected, the budget will include the one-year, $196-billion health-care funding deals recently secured with all provinces and territories, and the $2-billion one-time top-up to the Canada Health Transfer to address urgent pressures being experienced at pediatric hospitals, emergency rooms and surgical centres.
“We will ensure that Canadians can rely on a world-class, publicly-funded health-care system… And we will ensure that a strong and effective public health-care system can continue to care for and nurture a strong and healthy Canadian workforce,” Freeland said. “Universal and high-quality health care is rightly a priority for every single Canadian. It is also a national competitive advantage.”
As for what kinds of clean economy investments are ahead, Freeland was light on specifics in Monday’s speech, but it’s expected that it will include measures aimed at ensuring Canadian companies can be resilient in the face of a challenging economic landscape and competitive global markets.
A top concern in this regard is the United States’ Inflation Reduction Act, which has the Americans investing heavily in clean energy and net-zero industries.
Freeland said this global pivot to clean technology, and the recently-put-into-focus need to build critical supply chains with allied democracies in light of the pandemic and Vladimir Putin’s war in Ukraine, has Canada uniquely placed to benefit.
“These two fundamental shifts represent a huge economic opportunity for all of us… Because Canadian workers and Canadian businesses have the necessary expertise, and because Canada produces what the world needs,” Freeland said.
She set this up as a clear choice in her mind: Canada can either capitalize on this historic opportunity, or be left behind as other countries seize the call for a clean economy.
“That’s why the plan we will release next Tuesday will include a serious investment in Canadians, in good jobs, in more vibrant communities, and in a new era of economic prosperity that we will build together,” Freeland said. “We will build a Canadian economy that is more sustainable, more secure, and more affordable.”
Taking a shot at the Conservatives’ call for the 2023 federal budget to present a plan to cut taxes and spending, Freeland called it a “reckless approach.”
Federal budget to focus on clean economy, support for low-income Canadians, Freeland says – The Globe and Mail
4 Ways Social Media Normalizes Unhealthy Spending And How To Break Out Of The Cycle – BuzzFeed
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