At the 2019 RBC Capital Markets Canadian Bank CEO conference, bank leaders outlined where they were heading in 2020, and how they hope to recover from a disappointing 2019.
Within the first few moments of the conference, RBC President and CEO Dave McKay about his opinion on the mortgage stress test, which has been a continued topic of conversation, especially after the prime minister’s calls to examine it more closely.
“I think it’s generally been good policy,” said RBC President and Chief Executive Officer Dave McKay, adding that the stress test delayed purchases, caused consumers in Canada to look at less expensive homes and to adjust their desires. “I think we have to be a little bit careful in how we adjust it, but if done in the right way, with the right objectives, it can be achieved,” McKay said.
Louis Vachon, president and CEO of National Bank of Canada agreed, saying that he’s generally been in favour of the move, for the simple reason that when you look at what occurred in markets where you ended up with a disequilibrium in the housing market and excessive household debt, the one differentiating factor in those markets has been the underwriting standards applied to the mortgages.
“When you look at the lessons of what the Americans should’ve done in 2006—if they had a time machine, what they would do differently—most of the U.S. regulators would say, ‘We would have tightened up underwriting standards in 2005/2006 to avoid what occurred later on,” he said. “So I’ve always been in favour of proactive, macroprudential policies adjustment to avoid what occurred in some of the markets in Canada. I think it was the right thing to do.”
Vachon said that some consumers have been disproportionately impacted by the measure but thinks that the stress test needs to be in place for at least another three to six months. This additional time will allow regulators more data to help determine exactly what the impact has been and exactly where it needs to change in the future.
McKay echoed sentiments expressed by both brokers and builders that the bigger challenge is on supply management. With an increased number of immigrants to Canada and strong household formation, the demand is going to continue.
“The demand for housing is going to continue to go up, whether you manage it by a stress test or not. It’s the supply management side, which is really at the municipal and provincial level in many ways, we need to create more supply . . . we’ve moved into a strong sellers’ market again from a balanced marketplace and we haven’t been in a buyers’ market for quite some time because of those supply-demand dynamics,” McKay said.
CIBC experienced a 1.5% growth gap relative to the peer group in 2019, which president and CEO of CIBC Victor Dodig attributes largely to the decline in mortgage decline they experienced. They made a number of changes at the end of the year to address that gap, including: committing to a more diversified origination model rather than focusing on the GVA and GTA markets, which delivered a significant amount of their previous growth; growing from 840 to 920 “highly productive” mobile advisors; putting technology in place that’s both paperless and also allows the mobile advisors extremely fast approvals; and working to ignite more mortgage business within their branch network from financial advisors and financial service reps.
“All of that has delivered some pretty positive results in the months of November and December that we believe will continue to deliver into the year so that . . . our growth over the course of the year will look more market like on the mortgage front,” Dodig said.
Darryl White, the CEO and director of Bank of Montreal, said that all of 2018 was spent investing in the business and making decisions about how they’re going to accelerate their digital business, among other things. They don’t participate in the broker or third-party channels, and they haven’t changed their view on that strategy.
“The margins aren't where we'd like them to be. Unless the economics change, I don't think you'll see a pivot from us in that particular area,” said White.
Regarding mortgage brokers, Vachon admitted that National Bank does “flip-flop (we’re French, what can I tell you?)” but realizes that they should’ve been a bit more conservative with the mortgage brokers in Ontario but remained somewhat active in the market in Quebec, where the opportunities for cross-selling is higher.
White said that BMO is going to accelerate the ability to take market share in personal business due to their investments not only in the digital space but also in their sales and front-line staff. White said they’re “hiring aggressively” and putting people in place to meet clients anywhere they want to be met. They’re also going to continue growing their commercial lending.
“We sometimes forget at Bank of Montreal to talk about the commercial segment in Canada because we talk so much about it in the U.S. and we talk about the personal in Canada. But for a bank of our size to have the number two market share in commercial lending in Canada and having defended that against a pretty aggressive push by some of our competitors is also something that we're pretty proud of, and I think that will continue as well,” White said.