Canada’s CIBC ‘comfortable’ with mortgage book, watching for signs of stress

Canadian Imperial Bank of Commerce (CM.TO)is “comfortable” with the quality of its mortgage book, but is on the lookout for signs of stress, its chief risk officer said on Thursday.

“We’re very comfortable with where things are currently,” Shawn Beber said at the fifth-largest Canadian bank’s investor day in Toronto. If “things get more stressed, then you could see higher losses than (anticipated) but that’s not the base case scenario that we are looking at.”

Rising mortgage rates have already slowed the breakneck pace of Canadian home prices during the pandemic. Expectations for further increases are raising concerns that homebuyers who took out variable-rate mortgages at record-low rates could struggle with payments.

The average five-year fixed mortgage rate is 3.69%, the highest in over a decade, according to data. The variable rate, while climbing, is at 2.4%, below pre-pandemic levels. Most Canadian mortgages are for five-year terms, after which they must be renewed. The most common amortization period is 25 years.

While over half of new mortgages since July have been variable-rate, monthly payments on most of these stay constant, with only the proportion of interest rising alongside rates. The lower principal payments are accounted for through an increase in the amortization period.

“That could lead to a higher amount of outstanding balance at renewal, but in terms of the performance right now, it’s not changing the monthly payment,” Beber said. “As we look into the future, that can be a stress and we watch for that carefully.”

The bank has already taken into account “a much softer growth market” for mortgages, said Laura Dottori-Attanasio, head of Canadian personal and business banking.

CIBC, which has been spending on expanding and improving fast-growing parts of its business, will adjust the pace of its investments in response to market conditions, Chief Executive Victor Dodig said.

“If the market is more difficult, we will adjust our pace of investment,” Dodig said. “When it turns around, we will accelerate that pace of investment.”