Canadian banks have already received nearly half-a-million requests by borrowers to defer or skip mortgage payments in just a little more than two weeks, amid the swift financial uncertainty caused by the coronavirus pandemic.
The Canadian Bankers Association said Friday almost 500,000 requests had been completed or were being processed since lenders announced last month they would offer some financial relief, such as up to six months of deferred home-loan payments.
Borrowers quickly tried to take the banks up on their offer, flooding their phone lines with thousands of calls seeking assistance or information. The CBA said Canada’s six biggest banks have already deferred payments on more than 10 per cent of mortgages in their portfolio.
“The large number of customers who have been helped continues to grow as a result of concerted efforts by front-line workers, contact centre agents and operations teams working diligently,” the CBA said in a press release.
Combining the deferral requests with reports of slower real-estate activity and of massive layoffs across the Canadian economy, the negative economic effects of the coronavirus are becoming clear. The food-service industry alone has lost an estimated 800,000 jobs because of COVID-19, according to Restaurants Canada, while the aviation and oil industry workers have also been hit hard.
Toronto-Dominion Bank chief executive Bharat Masrani said Thursday that the lender had approved 60,000 requests for deferrals so far, which was “virtually all” of the applications.
Asked about his confidence in borrowers being able to resume repaying their mortgages when the deferral period ends, Masrani noted the “unprecedented” levels of government support and the recent talk of the crisis easing in a few months.
“And if that’s the case, then I think the support provided should provide flexibility to Canadians who have taken on the deferral program,” Masrani told reporters following the bank’s annual shareholder meeting, which was conducted virtually due to the coronavirus. “I would expect if this continues for a longer period, that governments will act.”
The broad conclusion is that the Canadian banks are well positioned to weather the coming storm
Eight Capital analyst Steve Theriault
Meantime, some borrowers are seeing more cash flow coming their way. The CBA noted in its press release, citing Canada Mortgage and Housing Corp., that the average monthly mortgage payment for a Canadian homeowner was $1,326. In other words, roughly $663 million in cash per month could be freed up by the deferrals, which borrowers could spend on other necessities.
“This number will increase over the coming weeks,” the CBA said.
As these mortgage payments are pushed back, Canada’s housing market is also beginning to show signs of a COVID-19-related slowdown. The Toronto Regional Real Estate Board reported Friday that the first 14 days of March saw a 49 per cent increase in sales year-over-year, at 4,643, but sales for the rest of the month were down by 15.9 per cent from a year ago, at 3,369. Total Toronto sales for the month were 8,012, a 12.3 per cent increase compared to March 2019.
“The overall sales result for March was strong relative to last year, but the impact of COVID-19 was certainly evident in the number of sales reported in the second half of March,” TRREB President Michael Collins said in a press release.
Similar findings were reported by the Real Estate Board of Greater Vancouver, which saw “steady home buyer demand to begin March and a levelling off of activity as the month went on and concerns about the COVID-19 outbreak intensified.”
Slackening demand in the housing market would be another headwind for the lending business, but the consensus remains that Canada’s banks are up for the challenge.
Eight Capital analyst Steve Theriault wrote recently that he had examined “a reasonable worst case for credit losses and the direct impact to earnings, capital and dividend payouts,” for Canada’s big banks.
“The broad conclusion is that the Canadian banks are well positioned to weather the coming storm,” Theriault wrote in a report. “We will not pretend to have a full view of the stresses that are sure to weigh on bank results in 2020 and 2021; however, we do believe that the group as a whole is well positioned from a capital perspective and that dividends will remain safe and equity raises unlikely.”
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