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Mortgage Defaults | No increase, assures the boss of the National Bank



(Montreal) Despite the rise in interest rates, mortgage defaults remained at a lower level than they were before the pandemic for National Bank customers, said its president and chief executive officer, Laurent Ferreira, during a conference bringing together the big bosses of the major Canadian banks.

Mr. Ferreira specified that the Montreal financial institution had recorded “a small” increase in defaults for variable rate mortgages, but that this proportion was lower than what was observed on the side of fixed rate mortgages and at the thresholds. before the pandemic.

“Overall, when we look at the performance of our loan portfolio and the ability of our clients to handle higher rates, it’s very good,” he said Monday in an exchange. with RBC Capital Markets banking analyst Darko Mihelic.

Asked about the subject, Mr. Ferreira indicated that the size of bank deposits suggested that household finances remained “robust”, despite the pressure undergone by the rise in interest rates and the increase in the cost of living.

He mentioned that almost a third of mortgage borrowers had increased their mortgage payments in 2022, and that of those 80% have a variable rate. “If you look at this cohort, they still have more cash than before the pandemic. Now it’s about the first payments [à des taux plus élevés]. Will it erode over time? Obviously, but they’ll be able to keep up the pace. »

The banker indicated that 10% of the portfolio of fixed-rate mortgages matures within the next 12 months and that a good share of the customers who will renew have a loan with an amortization period of less than 25 years.

Loyal customers?

Also present at the event, Laurentian Bank President and CEO Rania Llewellyn said she was not worried that rising interest rates would hurt customer retention.

More than half of the bank’s customers have only one product. This data represents an opportunity for the cross-selling of other products and services, but could also represent a risk in a market where customers would be inclined to shop more actively for their mortgage rates.

Asked about the subject, the leader pointed out that approximately 80% of the bank’s mortgage loans are at a fixed rate. Of this batch, approximately 70% will be renewed only in 2025. “For us, this represents a low risk of turnover rate. »

Laurentian Bank has deployed a “loyalty team” that contacts customers and offers them new products. Mme Llewellyn believes that the efforts of this team will help retain customers and increase the number of products and services they have with Laurentian.

For business loans, the manager believes that Laurentian stands out on other fronts than price. “We are very clear. Our customers know it: we do not compete on price, but on service, and this is reflected in customer satisfaction. »

She reiterated that she expected the rise in interest rates to allow the financial institution to increase its revenues and interest margins.

In an uncertain economic context, Llewellyn acknowledged that Laurentian Bank is taking a more conservative approach to capital buffers.

Laurentian Bank must maintain a minimum capital reserve threshold of 7%, but management is aiming for a higher threshold of 8.5%. At the end of the year, this ratio had risen to around 9%. For now, Llewellyn does not plan to deploy this excess capital.

“Given the weakening economic outlook, I said publicly in September that although our target is 8.5%, we are more comfortable around 9% and that is the commitment we have made. with investors. »

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