OSFI (The Office of the Superintendent of Financial
Institutions), the financial watchdog of the country’s banks and insurers is
keeping a keen watch over banks as consumer debt has reached record levels,
says a report.
OSFI is asking lenders to do a more stringent assessment of risks that consumer
debt can have on their balance sheets. It is instructing banks to conduct more
‘stress-testing’, where they have to examine the impact that scenarios like
rock bottom interest rates and low unemployment levels would have on their
capital levels and balance sheets. Julie Dickson, OSFI head, said that the
agency was also asking banks questions about how they were monitoring
portfolios.
She said that the OSFI was closely monitoring underwriting
practices, while adding that they were still prudent. But she said that they
had no option but to take a cautious approach in the light of the unusually
high debt loads at a time when interest rates are at a historical low.
Canadian household debt is at an all-time high. The ratio of
household debt to income stands at 148.1%, a record number. Mark Carney,
Governor of Bank of Canada warned bankers and borrowers of the risks of high
debt, especially in the light of the anticipated interest rate hikes in the near
future. He also called upon policy makers to keep a close watch on the mounting
debt and its impact on the housing market and economy as well as take necessary
measures to reduce risks associated with this increase to banks and consumers. Ottawa is also looking at
tightening mortgage lending criteria in its forthcoming budget by either requiring
bigger downpayments or cutting the maximum mortgage length. This could impact
people looking to take out a mortgage or home
equity loan.
