Can Canada’s big six banks weather the storm?

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The Royal Bank of Canada estimates that around $900 billion in mortgages will need refinancing between 2024 and 2026. This amount represents nearly 60% of all outstanding mortgages at Canada’s chartered banks.

FT warned that if the Bank of Canada maintains its benchmark policy rate at its multi-decade high of 5%, mortgage holders will have to contend with massive spikes in payments.

“Rates for a three- to five-year insured fixed mortgage have shot up from 1.93% in November 2020 to 5.74% in October 2023,” FT said, citing figures from RBC. “Payment increases range from a weighted average of 32% next year to 48% in 2026.

FT noted that potential mortgage defaults and losses are a particular concern for the Bank of Montreal, the Canadian Imperial Bank of Commerce, and Toronto-Dominion Bank, which together carry a portfolio of $128 billion in variable-rate mortgages currently experiencing “negative amortization”.

Despite these challenges, “the Big Six should be able to weather the storm,” FT said. “Unemployment has remained relatively stable. Credit quality is tolerable.

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