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Free AccessMNI POLICY: BOC: Consumer Finances Holding Up on Relief Moves
By Greg Quinn
OTTAWA (MNI) - Canada's housing market and consumer finances are holding up
as policy actions bridge incomes and keep credit flowing, the central bank said
Thursday.
Regulators and banks have allowed 700,000 mortgage deferrals over a period
of six months and flexibility on other consumer credit lines. After that time
there will likely be a further rise in the share of highly indebted households,
the Bank of Canada said, but even in its downside scenario from April where GDP
falls as much as 30% in the first half of this year, the damage to banks from
consumer finances may be limited, with the arrears rate potentially rising to
0.8% next year.
"The longer the income shock lasts, the greater the risk of a rise in
consumer insolvencies," the BOC's Financial System Review said.
The BOC said actions like the tripling of its balance sheet can be adjusted
as needed and federal government programs can be boosted the same way.
While 0.8% would still be double the arrears rate from the last recession
in 2009, it's a relatively happy outcome in a nation that faced years of
warnings from the IMF and global investors about a potential housing crash in
Toronto or Vancouver as households chased after million-dollar homes. Governor
Stephen Poloz earlier warned about frothy housing markets and warned buyers
about the temptation of big debts amid historically low interest rates.
There has been a hit to housing resales, the BOC said, and "reduced
liquidity in the housing market could add pressure to household finances since
households may find it increasingly difficult to sell their homes."
The biggest source of credit losses now may be business loans, according to
a BOC simulation of a downside economic scenario including the actions of policy
makers so far.
"In the 'With policy' scenario, business loans are the biggest contributor
to credit losses, and market losses also reduce capital. Losses from household
lending are less pronounced. Still, losses on consumer loans such as credit
cards are high compared with residential mortgage portfolios, which are
protected by collateral and, in some cases, mortgage insurance," the BOC said.
Other report highlights:
*Key fixed-income markets have improved since the BOC and other agencies
stepped in when they showed signs of strain earlier this year and "many of the
programs are now being used less than they were at inception."
*"We will continue to assess the impacts of these measures and can adjust
the scale of these programs as market conditions change."
*"Canada's key financial institutions are strong enough to deal with these
challenging conditions, including operational disruptions."
*Corporate financing faces risks from potential credit rating downgrades,
and the energy industry is most vulnerable.
*The BOC lauded the key role of fiscal relief in sustaining the economy:
"During this period, emergency measures that provide basic incomes to households
and help businesses access credit are crucial."
--MNI Ottawa Bureau; +1 613-314-9647; email: greg.quinn@marketnews.com
[TOPICS: M$C$$$,MC$$$$,MK$$$$,MT$$$$,M$$CR$,M$$FI$,M$$MO$,MN$FI$,MN$MM$,MN$RP$]
To read the full story
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Please enter your details below.
Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.