A possible downturn in Canada’s housing market and adjusting to speedy will increase in rates of interest are among the many greatest dangers to Canada’s monetary system this fiscal 12 months, the nation’s monetary regulator stated on Tuesday [April 18].
The Workplace of the Superintendent of Monetary Establishments (OSFI) stated it was guaranteeing that federally regulated monetary establishments have been alert to altering market situations in its first annual threat outlook report for the 12 months ending March 31, 2024.
“OSFI is making ready for the chance, however not predicting, that the housing market will expertise sustained weak point via 2023,” stated Peter Routledge, superintendent at OSFI.
The regulator additionally stated the adjustment to greater rates of interest “is probably not fully clean” and that it was intensifying monitoring of market liquidity.
The Financial institution of Canada raised charges at a file tempo over the previous 12 months to tame inflation that touched a four-decade excessive in June. The financial institution has left its key coverage fee on the 15-year excessive of 4.50% in its final two coverage conferences to permit the consequences of coverage tightening to sink in.
“The steep enhance in rates of interest has eroded debt affordability,” OSFI stated within the report. “Mortgage holders might not have the ability to afford continued will increase on month-to-month funds or would possibly see a major cost shock on the time of their mortgage renewal, resulting in greater default chances.”
OSFI will concern draft steerage on debt administration measures designed to higher management threat from excessive ranges of client indebtedness and look at methods to extend credit score high quality and mortgage underwriting at federally regulated monetary establishments.
The regulator is assessing the dangers posed by variable fee mounted mortgages.
Different monetary system dangers embrace “development and uncertainty” in unregulated non-bank monetary establishments that would threaten the broader monetary system beneath situations the place markets are unstable of falling, the regulator stated.
Such non-bank monetary entities have totally different enterprise fashions, steadiness sheets and governance buildings and embrace funding funds, insurance coverage corporations and pension funds.
Except for non-bank entities, OSFI warned about climate-related dangers, equivalent to climate occasions, and knock-on results from the nation transferring towards a low greenhouse gas-emitting ecnonomy.
OSFI plans to gather, analyze and disclose new local weather threat knowledge.
Different monetary systemic dangers embrace cyber assaults and dangers from rising applied sciences.
(Reporting by Maiya Keidan and Ismail Shakil; modifying by Jonathan Oatis)
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