TD Bank’s plans to use a significant uptick in business lending to make up for a cooling mortgage market is garnering mixed – albeit positive – reaction from brokers and mono-line lenders.
On Thursday TD chief executive Ed Clark told shareholders that the big bank is seeing a transition from consumer to business lending as the economy finally gets back on its feet.
While there’s increasing economic data suggesting Canadian consumers are hesitant to take on new debt for cars or homes, according to TD, there are also indicators suggesting manufacturers, retailers and other business owners are ramping up their borrowing.
That new money will likely get pumped into equipment, supplies and merchandise, said Clark, calling the increased activity “a good thing.”
"One of the deserving elements during the downturn is that while the consumer kept on borrowing and spending in Canada — different than what occurred in the United States — the commercial sector was still tentative about whether to invest." said Clark at Thursday’s annual meeting. "Now it seems their confidence level has moved up and our business leaders are in fact now starting to draw down, take down money and reinvest in their businesses."
While TD's talk of a slowing mortgage sector has taken some mortgage professionals by surprise, the bank’s shift to business lending is largely seen as a sign of good times ahead for the industry as it grapples with federal rule changes, ushered in last month. They seek to curb consumer borrowing.
“I think the TD move to increase its business lending is a really good sign,” James Robinson, an agent with The Mortgage Centre Mortgage Watch Inc, told MortgageBrokerNews Friday. “It signals that in the long-term there is going to be the kind of economic growth that creates jobs, increases consumer capacity, and allows consumers to pay down bad debt and take on good debt – mortgages.”
Still Robinson and others in the sector resist the idea that the country’s mortgage business is now entering into period of short-term decline as Canadians seek to cull their record-high debt levels.
“We just haven’t seen a falloff,” said David MacVicar, VP of Verico
Premiere Mortgage Centre, headquartered in Halifax. “We’re up year over year in Ontario and Atlantic Canada, and we’ve seen consistent volumes.”
The latest national data present a more-varied picture.
According to the Teranet-National Bank Composite House Price Index, Canadian existing home prices rose 0.4 per cent in January from a month earlier, although the growth follows three consecutive monthly declines, starting in September. And while prices rose in four cities – including Halifax, where prices jumped 0.4 percent – the numbers for most other cities slipped. Ottawa, for instance, saw January’s existing-home sales drop by 0.6 per cent, representing the fifth straight monthly decline.
TD’s shift toward business lending may reflect that uncertainty. But the move may ultimately create opportunity for the country’s mono-line lenders as they fight the Big Five for market share.
“It’s interesting, the approach that TD is taking in shifting focus,” Karen Biernaski, First National Financial’s marketing director, told MortgageBrokerNews Friday. “But we’re staying the course and are continuing to look for ways to help grow market share for us and the broker channel. That remains a real possibility.”