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Over the past three months, roughly 13,000 CIBC clients have taken action to bring their mortgages out of negative amortization.

Negative amortization can impact fixed-payment variable rate mortgage clients when interest rates rise rapidly. When the fixed monthly payments are no longer enough to cover the rising interest portion, the balance is then added to the principal amount owing.

CIBC said the value of mortgages that were “non-amortizing” fell to $43 billion in the fourth quarter from $50 billion in Q3. The bank said this represents roughly half of its variable rate mortgage portfolio.

“Clients are choosing to increase their payments, converting to fixed rates, making onetime prepayments…all of which bring the loan back to amortizing status,” said Chief Risk Officer Frank Guse.

Both BMO and TD, the other big banks that offer fixed payment variable rates and that allow temporary negative amortization, have reported similar results. TD said it has seen “positive payment actions by clients” in response to higher interest rates.

Guse was asked to comment on reasons why some clients may be choosing not to take action.

“There are a couple of reasons for that. Some are just saying, ‘I’m aware of the status, I do not have to take action right now, I expect interest rates to come down and I just want to wait for that,’” he said.

“But in general, we are very pleased with the outcomes that we are seeing so far,” he added. “We continue to expect seeing those outcomes, and we continue to expect that number to come down as we keep up our outreach efforts and having conversations with our clients.”

Clients will see average monthly payment increases of $350-$700 at renewal

CIBC also provided insight into its upcoming mortgage renewals, the bulk of which—some $200 billion worth of mortgages—will be resetting over the next three years.

Of those, the average loan-to-value is between 40% and 50%, and CIBC estimates the average monthly payment increases at between $350 and $700, “which represents an increase of about 3% to 5% based on the origination income,” it said.

In its scenarios, the bank assumed a renewal interest rate of 6% over the next five years and no change in income since origination.

“I want to acknowledge that this high rate environment, paired with cost of living pressures puts pressure on our clients,” Guse said. “We are actively working with clients experiencing financial hardship to help drive to the best possible outcome. But overall, we feel comfortable with the resilience and reserve levels of our mortgage portfolio.”

Thanks to action being taken by mortgage clients, average amortization periods are now slowly trending back down.

Less than a quarter (22%) of CIBC’s residential mortgage portfolio now has an effective amortization of 35 years or longer, down from a peak of 27% in Q1.

Remaining amortizations for CIBC residential mortgages

Q4 2022 Q3 2023 Q4 2022
20-25 years 31% 31% 31%
25-30 years 17% 20% 22%
30-35 years 4% 2% 2%
35 years and more 26% 25% 22%
This table summarizes the remaining amortization profile of CIBC’s total
Canadian residential mortgages based upon current customer payment amounts.

CIBC earnings highlights

Q4 net income (adjusted): $1.52 billion (+16% Y/Y)
Earnings per share (adjusted): $1.57

Q4 2022 Q3 2023 Q4 2023
Residential mortgage portfolio $262B $265B $266B
HELOC portfolio $19.4B $19.1B $19B
Percentage of res’l portfolio with variable rates 33% 33% 32%
Avg. LTV of uninsured mortgage portfolio 48% 51% 50%
Canadian res’l mortgages 90+ days past due 0.13% 0.17% 0.21%
Canadian banking net interest margin (NIM) 2.47% 2.67% 2.67%
Total provisions for credit losses $436M $736M $541M
Source: CIBC Bank Q4 Investor Presentation

Conference Call

  • On the federal government’s recently announced Canadian Mortgage Charter, CIBC President and CEO Victor Dodig was asked if there was anything new in the guidelines that may impact the bank. He responded: “It’s very well aligned with previous guidance and expectations. It’s something that we do. We work with clients in financial hardship and we try to get to the best possible outcomes with our clients wherever possible. So, there’s nothing new that I would say that sticks out and would impact us as we already have established practices of how we work with clients in financial hardship.”

Source: CIBC Q4 conference call

Note: Transcripts are provided as-is from the companies and/or third-party sources, and their accuracy cannot be 100% assured.

Featured photo Illustration by Rafael Henrique/SOPA Images/LightRocket via Getty Images

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