High household debt and the fastest interest rate hiking cycle in recent memory is the biggest risk to Canada\u0027s economy, says OSFI. Read on
OSFI is maintaining a cautious stance as the seasonally adjusted household debt to disposable income ratio rose toin the third quarter from 180.6 per cent at the beginning of the year, according to Statistics Canada. The rising figure is enough to make the regulator uneasy, especially as it nears the record of 184.6 per cent in the third quarter of 2018.Article content
Routledge said this figure is high by historic standards and relative to other G7 peers. However, he said the regulations and safeguards put in place since the global financial crisis in 2008 have acted as a buffer that has served Canada well.BMO's plans to fund Bank of the West deal shaken by surprise OSFI capital-buffer changes
“I cannot overstate the strengthening of underwriting standards since that time and the strengthening of underwriting standards in Canada,” Routledge said. “I’m quite confident that if you overlay the same set of exogenous events on the Canadian housing market now that you had back in the mid-2000s, Canadian credit losses would be an order of magnitude lower.”Article content
In other words, Routledge said he believes the underwriting quality will protect Canada’s financial system from excessive credit losses in the face of a recession. “If you would have told me a year ago today with perfect precision what was happening, I wouldn’t have said the base case is this good,” Routledge said. “So now, the turn and the shift for 2023 is: will it stay this constructive? Or could things deteriorate beyond what we’re comfortable with and how would we react? And that’s day by day, week by week, what we’re asking ourselves.”
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