Canadian bank executives say they can accommodate the higher credit requirements that the banking regulator has set in response to growing economic vulnerabilities.
Speaking Monday at a conference in Toronto hosted by the Royal Bank of Canada, red blood cells managing director Dave McKay the bank will stay well above its 11% capital buffer requirement even with the pending $13.5 billion acquisition of HSBC Canada, while it takes time to adapt to any increase in capital. any more potential.
“We always run an active buffer, because you never want to drop below your minimum threshold and face the need to do something unplanned,” says McKay.
In December, the Office of the Superintendent of Financial Institutions (OFSI) increased the capital requirement that banks must maintain by half a percentage point. It also increases the scope for further increases as a potential safeguard as higher interest rates place additional stress on borrowers.
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At the bank’s CEO conference on Monday, OFSI head Peter Routledge said the regulator made the change as part of being proactive as systemic vulnerabilities continue to be high. and in some cases has increased significantly in recent quarters.
“We would rather make the mistake of acting too soon than be criticized for acting too late,” says Routledge.
McKay said that while the housing market is correcting somewhat, he does not expect that the increase in mortgage defaults will be a significant pressure on the bank’s capital, as only a low percentage of total bank borrowers have both a potential payment crisis and low collateral in their homes.
Scotiabank President Scott Thomson, who will take over as CEO from Brian Porter in February, said the bank aims to build its credit buffer to 12% by the end of the year, which is a high as much as the regulator may currently require .
Like McKay, Thomson said Scotiabank will see a capital boost from organic growth, as well as a boost from changes in international rules on how capital is valued. He said Scotiabank still has the option of doing a dividend reinvestment discount, as most other banks have done, to raise capital.
“I feel pretty comfortable getting to that 12 percent by the end of the year, and I think that’s appropriate for the environment we’re in.”
National Bank chief executive Laurent Ferreira said the bank was already operating capital above 12%, so the latest adjustments should not affect how the bank operates.
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