BOC's Poloz: High Homeowner Debt To Take Long To Improve

--On Right Track But Few Years To Become Sustainable

By Courtney Tower

     OTTAWA (MNI) - Canada's record high household indebtedness, the chief risk

to financial stability in the country, is on an improving track but one that

will take a long time to reach sustainable levels, Bank of Canada Governor

Stephen Poloz said Tuesday.

     Keeping monetary policy aimed at a 2.0% annual inflation target (now at

1.4%) will enhance the already improving fundamentals of the economy within "a

year and a half or two years," Poloz told a press conference.

     And that would  see the negative impacts of household indebtedness and

overheating in half the housing market - Greater Toronto and Greater Vancouver -

lessening over "the next few years," he said.

     Poloz and Senior Deputy Governor Carolyn Wilkins met reporters after the

BOC issued its semi-annual Financial Stability Review. The FSR presented

household indebtedness as the main risk to financial stability in Canada, as it

has for some years, along with the related problem of imbalances, forcing up

prices, in the overheated markets.

     He said of these that "it will take a long time for them to return to more

sustainable levels."

     The BOC is increasingly concerned about "riskier characteristics"

developing in the higher amount of low-ratio mortgages being taken out by highly

indebted borrowers, he said.

     The growing place in the housing market being taken up by home equity

loans, where the FSR said 40% of borrowers do not pay interest or capital on any

regular basis, was another area of concern raised by the BOC.

     Poloz told reporters that this is of concern where the loans are taken out

for speculative purposes, such as new investments. Wilkins said these home

equity loans "have the characteristics of demand loans" and their interest rates

can change over time, causing possible difficulties.

     But Poloz emphasized what was said in the FSR, that the strengthening

Canadian economy and improving employment augur well for constraining the

indebtedness problem.

--MNI Ottawa Bureau; +1 613 869-0916; email: yali.ndiaye@marketnews.com

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