National Bank says its consumers remain “resilient” with  billion worth of excess liquidity

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National Bank reports that its mortgage clients have been resilient in the face of sharply higher interest rates, thanks in part to high levels of liquidity.

“Supported by favorable employment and savings rates, borrowers continue to demonstrate resiliency as they absorb the impacts of higher interest rates,” Chief Risk Officer Bill Bonnell said during the bank’s third-quarter earnings call.

Much of that is in the form of deposits, which the bank says remains at elevated levels, providing clients with a financial buffer.

“Specifically on retail deposits, we still see lots of excess liquidity compared to pre-pandemic levels…we’re talking more than $1 billion in liquidity there,” said Lucie Blanchet, Head of Personal Banking. “And we see that liquidity being put to work with customers paying higher debt.”

She noted that credit utilization rates for lines of credit remain low. The bank’s Home Equity Line of Credit (HELOC) portfolio, for example, saw just a 0.33% increase compared to the second quarter.

“The credit card portfolio is growing, but the revolving balances are lagging,” Blanchet added. “So, we see good usage of liquidity, and we see a resilient consumer.”

Variable-rate clients not seeing their amortizations extend

Another reason National Bank’s clients are performing well with their renewals is due to National Bank offering adjustable-rate variable-rate mortgage products, similar to Scotiabank.

This means its variable-rate clients have seen their payments rise gradually over the past year and a half as prime rate has risen, unlike fixed-payment variable-rate borrowers at other banks whose payments have remained steady who have seen their amortization periods lengthen.

Nearly 4-in-10 of National Bank’s mortgage clients have a variable-rate product.

“Payments on our variable-rate mortgages have adjusted upwards with central bank rate increases, so these are the customers who have had to adapt most quickly to higher rates,” Bonnell said.

“While we have seen early delinquencies rise past pre-pandemic levels for insured variable-rate mortgages, they remain low for uninsured variable rate mortgages as customers have prudently adjusted discretionary spending,” he added. “You’ll also see that the remaining amortizations of our mortgages have not extended and the portion of over 30 years remains low at 1% of the portfolio.”

Looking forward, Bonnell said the bank expects “further normalization” with rising levels of delinquencies in the coming quarters.

“The speed of normalization will be heavily influenced by the path of unemployment and interest rates,” he said.

National Bank earnings highlights

Q3 net income (adjusted): $839 million (+1.6% Y/Y)
Earnings per share: $2.21

Q3 2022 Q2 2023 Q3 2023
Residential mortgage portfolio $88B $89.2B $90.4B
HELOC portfolio $29B $29.6B $29.7B
Percentage of mortgage portfolio uninsured 37% 38% 38%
Avg. loan-to-value (LTV) of uninsured book 50% 58% 57%
Fixed-rate mortgages renewing in the next 12 mos NA 11% 11%
Portfolio mix: percentage with variable rates 31% 32% 29%
90+ days past due (uninsured portfolio) 0.07% 0.08% 0.07%
Canadian banking net interest margin (NIM) 2.17% 2.34% 2.34%
Percentage of the Canadian RESL portfolio comprised of investor mortgages 11% 11% 11%
Source: National Bank Q3 Investor Presentation

Conference Call

  • Residential mortgage volume was up 2% year-over-year, “reflecting current housing market conditions and our strategic decision to focus on our proprietary channels,” noted Marie Chantal Gingras, Chief Financial Officer.
  • “The housing market is enduring the impact of higher rates amid demographic growth and limited supply,” said President and CEO Laurent Ferreira. “This development is likely to keep inflation higher for longer and limit the Bank of Canada’s ability to offer short-term interest rate relief.”
  • “In retail portfolios, impaired provisions continued to rise from last year’s lows but remain below pre-pandemic levels,” said Bill Bonnell, Chief Risk Officer.
  • “Supported by favorable employment and savings rates, borrowers continue to demonstrate resiliency as they absorb the impacts of higher interest rates,” Bonnell said.

Source: NBC Conference Call

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

Feature image illustration: Pavlo Gonchar/SOPA Images/LightRocket via Getty Images

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